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Uber is selling its Southeast Asia business to competitor Grab

As part of the deal, Uber will get a 27.5 percent stake in the company and CEO Dara Khosrowshahi will join the Grab board.

Grab CEO Anthony Tan
Grab CEO Anthony Tan
Asa Mathat

Uber is officially exiting Southeast Asia. The ride-hail company has agreed to sell its regional business to its primary competitor, Grab.

The sale price wasn’t disclosed, but as part of the deal, Uber will be getting a 27.5 percent stake in the company, described as worth “several billion dollars” by Uber CEO Dara Khosrowshahi in an email sent to employees. He will also be joining Grab’s board.

Grab, backed by SoftBank and former Uber competitor Didi, will also inherit 500 Uber employees across the region, according to an email Khosrowshahi sent to staff.

Grab has raised more than $4 billion to date and was last valued at $6 billion. Beyond its car and taxi-hailing services, the company also has a payments platform called GrabPay and recently launched a financial services platform. As part of the merger, Grab will also be acquiring Uber’s food-delivery business, UberEats, in Southeast Asia.

“I’m conscious that much of the hard work happened before I arrived, and I want to recognize the operations you have built across these eight countries,” Khosrowshahi wrote in an email to Southeast Asia employees. “After investing $700 million in the region, we will hold a stake worth several billion dollars, and strategic ownership in what we believe will be the winner in an important global region.”

This is the third major market Uber has exited through a deal of this kind. In August 2016, China-based ride-hail behemoth Didi acquired Uber’s business in the country. In July 2017, Uber also pulled its operations out of Russia by merging with top competitor Yandex.Taxi.

In his email to staff, Khosrowshahi said this transaction will help the company focus on the core markets like India, Latin America and the Middle East.

“It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind, from China to Russia and now Southeast Asia,” Khosrowshahi wrote. “The answer is no. One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors. This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.”

The deal also sheds light on how SoftBank and its Vision Fund could seek to manage looming conflicts of interest within its quickly growing portfolio. While long a backer in Grab, this sale occurred just two months after SoftBank finalized a separate deal to acquire 15 percent of Uber. Talks about merged operations in Southeast Asia began almost immediately afterward.

SoftBank has publicly encouraged Uber to focus on the United States and Europe.

Going forward, the company doesn’t expect to make more deals wherein it acquires a minority stake and pulls its operations from a major market, a source familiar told Recode. That’s partly because the executive team is confident in its position in places like India and the Middle East where Uber faces competition from well-funded players Ola and Careem, respectively.

Uber’s agreement with Grab is slightly different from the company’s transactions with both Didi and Yandex. Didi invested $1 billion in Uber at the time of the transaction; that won’t be the case with Grab. As part of the Yandex merger, the two companies created a joint venture in which Yandex had a majority stake. Grab, instead, is acquiring all of Uber’s Southeast Asia assets and folding it into its own operations.

The complexities of operating in Southeast Asia are often underplayed. The region is composed of eight countries with distinct markets and economies. In other words, what works in Singapore may not always work in Vietnam and vice versa.

In Singapore, for example, Grab offers 11 distinct services to consumers — like GrabNow which allows a rider to hail a cab off the street and then connect their app with the driver to book a ride — and just six in Vietnam. In Vietnam, on the other hand, Grab operates a motorcycle-hailing service called GrabBike that is not available in Singapore.

When Uber first began expanding globally at breakneck pace, the company often simply transplanted the business model and offerings that worked in the U.S. to these new markets. That proved not to work in many places especially as Uber faced off against players that were native to those markets like Didi and Grab.

Grab has long touted its hyperlocal advantage over Uber. That deep knowledge of the nuances of each of the eight countries arguably helped the company expand outside of car and taxi-hailing and into payments and financial services. This merger is an indication that Uber recognized that advantage.

This article originally appeared on Recode.net.