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It’s been more than two weeks since Uber director Arianna Huffington said a deal for a massive investment from Japanese conglomerate SoftBank was “very likely” to reach an agreement on the starting price within the next week.
Since then, October has become November — and the parties appear no closer to kickstarting the stock sale designed to soothe tensions at the world’s most valuable private company.
The big question: Is the multi-billion dollar deal in which SoftBank is trying to acquire 14 percent to 20 percent of the ride-hailing company in trouble? Or is the slowdown just routine haggling over dollars and cents?
According to people with knowledge of the process, it’s mostly the latter, with the main stumbling block still revolving around price. Existing Uber shareholders are insisting on a price per share that far exceeds the $50 billion valuation currently under discussion, with one possible seller arguing for a price of at least $40 per share, or around a $60 billion valuation. The window of prices has ranged from $35 to $45 a share, a second investor said.
“We’re very valuation sensitive. We’ve walked away from a number of deals recently because we didn’t like the valuation,” said Jeff Housenbold, a chief dealmaker at SoftBank, as he discussed its investment strategy more broadly at the Cross-Border Venture Summit conference Wednesday.
That said, he noted: “In the grand scheme of things, if we have a belief that this could be the next $400-billion company, arguing over a pre-money valuation of $1.8 billion or $1.9 billion isn’t really that relevant to us.”
In the case of Uber, $40 per share would merely be the starting point for the tender offer — a price that would gradually increase in a type of auction if there aren’t enough sellers at a given price.
“Everyone’s trying to do the math right now,” said one Uber investor.
Mutual funds such as Fidelity that own Uber shares have not changed their own internal valuations of its stock, as they disclosed in new filings this week. Currently, different funds value the company between $41 and $49 a share.
The price of the deal is key since it would serve as the guiding price of any future secondary transactions, one investor said. Under its old CEO, Travis Kalanick, Uber cracked down on existing investors who tried to sell their ownership positions, which is not likely to be as rigid in the future.
One possible idea floated in recent weeks — but shut down — has been a “tiered pricing” scheme. In that scenario, sellers who sell a higher volume of their shares would be able to sell shares at a higher price than those who render a smaller amount. That’s not typical in a tender offer process, which generally requires all buyers and sellers to transact at the same pricing point.
There are other issues to settle, including the explosive lawsuit filed by Benchmark Capital — which owns more than 10 percent of the company and has a board seat held by Matt Cohler — against Kalanick, whom the venture firm helped oust and has been trying to restrain.
Some on the board have assumed that Benchmark will drop the lawsuit as part of the funding deal with SoftBank.
The deal would seem to obviate the need to restrain Kalanick with a lawsuit, but sources said that Benchmark has not unconditionally agreed to drop their legal claims as part of a grand bargain. And the venture capital firm has also hired a transaction attorney to advise them on how to navigate the Uber drama.
The suit was sent to private arbitration by a Delaware judge more than two months ago, but an arbitrator had not yet even been named as of last week.
That said, a slow-walking of the lawsuit might be acceptable. “If Benchmark doesn’t want this to proceed right now, they’ve got plenty of latitude to delay it,” said Chris Compton, the head of the Silicon Valley Arbitration & Mediation Center.
Another holdup is whether Kalanick would be able to fill the board seats he controls without requiring the majority support of the rest of the board. That particular governance reform is tied to the funding deal.
The two sides dispute whether that majority support provision was part of the initial, tentative agreement. Kalanick allies see that late flashpoint, first reported by the Wall Street Journal, as a late “power grab” by his opponents.
Kalanick controls two board seats in addition to his own and Uber has already seated his two appointments, made by him suddenly earlier this fall. No surprise, the aggressive former CEO doesn’t want to have to clear future appointments by his fellow board members.
Still, this disagreement is not expected to scuttle the deal, either.
This article originally appeared on Recode.net.
