Grab-Uber asset light merger is proving resilient to regulator probes. Was it a good deal for Grab?

4 April 2018, Global – Even by ride-hailing industry standards, Grab’s acquisition of Uber Southeast Asian operations is remarkably asset light. The Grab-Uber deal has panicked millions of commuters and drivers across the region into a frenzy over what Grab would do now that it has a dominant market position. Affected Southeast Asian governments have responded with investigations and threats of legal action; the most ominous warning came from the Competition Commission of Singapore (CCS) which has proposed measures that seek to block the integration of the businesses of Grab and Uber in Singapore.

But when there is so little transfer of assets, what can regulators really do?

Truth be told, it does seem like a stretch to describe the Grab-Uber deal as a merger seeing as so few assets (physical or intellectual) are actually being transferred from Uber to Grab. So far this is what is known about the Grab-Uber deal:

  • No integration of Grab and Uber apps in Southeast Asia or anywhere else
  • No transfer of physical assets (Note that Uber’s Lion City Rentals which has 12,500+ vehicles, is not part of the deal)
  • No transfer of Uber drivers to Grab
  • Uber Eats delivery and restaurant partners may be transferred to GrabFood platform
  • Names, phone numbers and histories of Uber account holders in Southeast Asia will be transferred to Grab

There is no physical asset transfer and with no integration of Grab and Uber apps, there will also be no joint branding or synergies from Uber customers outside of Southeast Asia. For example, Grab cannot tap on Uber customers from other markets who are visiting Southeast Asia since they will have to download Grab’s app separately. In addition, Uber will not be giving these customers any incentives to download Grab’s app.

So while regulators can prevent Uber from transferring data to Grab, that is of little consequence to Grab since Uber’s drivers are not part of the deal and as for Uber’s Southeast Asian customers, they probably long had both Uber and Grab apps installed already.

The new GrabFood platform will also not benefit much due to the lack of integration of apps. In any case, Uber’s strength is in ride-hailing, not food delivery. It was always uncertain whether Uber Eats would ever be able to compete effectively against the many food delivery services in Southeast Asia, e.g. Deliveroo, Foodpanda, GO-FOOD, LINE MAN, Vietnammm.com among others.

Therefore, one cannot help but think that the Grab-Uber deal is essentially a simple transaction whereby Uber is being paid a lot (27.5% of Grab) in return for leaving and not competing in Southeast Asia.

If the Grab-Uber deal is a merger only in name then what is there for regulators to block? They cannot stop Uber from leaving and indeed, Uber’s Southeast Asian offices were emptied almost immediately with employees reportedly told to vacate the premises within hours of the Grab-Uber deal announcement. There was not even a proper transfer of employees from Uber to Grab with many Uber employees initially left in the dark about whether they were being retrenched or transferred. Grab would later clarify that positions would be found for affected Uber employees, only problem was that it did not have all their contact information!

Near impossible to get merger approval from regulators in eight very different countries

The asset light and simple structure of the Grab-Uber merger might very well be a response to the near impossible task of getting approval from eight countries (Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) that have highly different political cultures, states of development, income levels, populations and priorities.

Chart: Grab-Uber deal comparison with Uber’s previous deals with DiDi and Yandex

Chart: Grab-Uber deal comparison with Uber’s previous deals with DiDi and Yandex

 

Even by ride-hailing industry standards and compared to Uber’s other deals, the Grab-Uber is remarkably asset-light. For the DiDi-Uber deal, Uber China (which contained all of Uber’s China assets) still continued as an independent brand with its own operations albeit under DiDi’s ownership. As for Yandex-Uber, a combined company was set up with Uber and Yandex.Taxi investing US$225 million and US$100 million respectively. Consumers are still able to use Yandex.Taxi and Uber apps for the combined company, driver-side apps were integrated.

Was it a good deal for Grab?

Uber invested US$700 million in Southeast Asia over 5 years, much if not most of that money went to ride subsidies, i.e. cash burn. So being able to walk away with 27.5% of Grab (last valued at more than US$6 Billion) is clearly a good outcome for Uber. The outcome for Grab isn’t quite so clear yet.

Compared to DiDi in China and Yandex in Russia, Grab’s Southeast Asian dominance with Uber’s exit is not as overwhelming. Indonesia’s ride-hailing giant, GO-JEK has recently raised US$1.5 Billion for further expansion, Vietnam’s Phuong Trang is pledging US$100 million to back up Vato, its new ride-hailing app venture and according to the Straits Times, Singapore’s ComfortDelgro is still keen on spending hundreds of millions on Uber’s Lion City Rentals.

However, Grab’s competitiveness was instrumental in pushing Uber out of Southeast Asia and that will not be lost on any potential rivals. Let’s not forget that Grab recently raised a US$2.5 Billion war chest so Grab’s rivals will tread carefully for now so as not to trigger a ride subsidy war that they cannot win. In addition, Grab is unlikely to raise fares in the near future to deter anyone from trying to fill the void left behind by Uber. However, memories of Grab’s fearsome reputation will eventually fade especially with the arrival of fresh private equity capital so Grab probably has 6-12 months of crucial breathing space for an aggressive roll out of its Grab Financial products and O2O (Online-to-Offline) initiatives to consolidate its position before more mutually destructive competition emerges.

 

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