Uber acquires its biggest rival in the MENA (Middle East and North Africa) region – Careem in a whopping deal of worth $3.1 billion.
This decision came after several speculations that hinted towards a possible merger. The Uber will now acquire Careem which has more than 33 million users in 98 cities.
The acquisition consists of $1.7 billion in convertible notes and $1.4 billion in cash which are subjected to the regulatory approval as of now.
Uber’s CEO Dara Khosrowshahi said that he expects the acquisition to conclude till early 2020.
Even after the acquisition, Careem will operate as an independent brand under Uber. This means that both Uber and Careem will offer rides to their customers.
It’s possible that Uber might experiment with new features on either of the platforms before introducing it to the other.
Why Uber went for acquisition?
There are many reasons as to why Uber went for this massive acquisition. I’ve listed the three major reasons below.
Past defeats
Uber is the most successful ride-hailing company in the world which is operational in over 60 countries. It has been successful in majority of the regions where it set up its business.
However, there have been few cases in which Uber was brutally defeated by the local players of the respective country.
In 2016, Uber withdrew from China after selling its services to their local rival Didi Chuxing for $35 billion. This ended the long losing battle in which Uber lost $ 1 billion every year in China.
Unfortunately, China was not the only battle that Uber lost. Succumbing to the cut throat competition offered by the Singapore based taxi hailing company GRAB, Uber decided to withdraw itself from the south-east Asian market and in return acquired 27.5% stakes in GRAB.
The last blow came from the Russian company Yandex which is referred to as the “Google of Russia”. Uber invested a whooping $225 million to take just 36.6 percent of the new venture.
Whereas Yandex racked up 59.3% of the company’s ownership by investing just $100 million.
With such heavy defeats in various parts of Asia, the pressure was mounting on Uber to take a bold decision which might have motivated them to acquire Careem.
IPO offerings
Uber is planning to go public for quite a long time. Lyft, its arch rival in US has already beaten Uber by going public first. If Uber goes public then its stake would be available for the common people to buy.
Now, to attract more investors it’s important for Uber to show consistent growth. Uber has been quite inconsistent due to their recurring legal matters.
So, this could be a strong reason for Uber to go for acquisition that would have a positive impact on their IPO.
Careem’s dominance in MENA region
It won’t be wrong to say that Careem is Uber of MENA region. The Uber-like taxi app has its dominance in the Middle-East and North African countries.
The company is based in Dubai and operational in around 15 countries.
With acquisition Uber will have an upper hand in all those countries plus it would introduce its services to the markets like Iraq and Morocco where it was never operational before.
Is this acquisition anti-competitive?
The acquisition is bound to happen. However, it would need regulatory approval for it. And with it the question arises.
What if this acquisition doesn’t get an approval? What if the country’s competition watchdog finds the deal to be anti-competitive in nature?
We haven’t got much detail about the nature of the deal so only time will answer that question. But it’s true that Uber has faced similar problems in the past.
Fine by Singapore
Not long ago, Uber and Grab were fined by the Competition and Consumer Commission of Singapore (CCCCS) of $9.5 million after their merger.
The body which enforces the competition act in the country levied $4.7 million and $4.8 million on Grab and Uber respectively.
After a month’s investigation CCCCS found that the Uber-Grab merger had violated the anti-competition laws.
In its investigation CCCCS found that the Grab had raised its prices by about 10-15 percent after the deal; however, its market share grew by a massive 80%.
At last, CCCCS found that the transaction was anti-competitive in nature and was carried out to reduce the competition in the taxi-hailing market in Singapore which is clear breach of section 54 of the competition act.
Egypt’s warning
Egypt is an important part of the MENA region as both Uber and Careem are operational there. And not many months back both the companies got a warning from the Egyptian competition authority regarding the possible merger.
At that time the authorities had conducted preliminary market assessment to evaluate the anticompetitive risks in the country. Later they communicated their findings to both Uber and Careem.
The authorities had quoted some laws to suggest that any merger between the two firms could potentially harm the freedom of competition in the country and thus it violates the law. So, what does the Egyptian law exactly says?
Article 5 states that “the provisions of this law are enforceable on acts committed abroad if it is likely to lead to the prevention, or the restriction or a harm to the freedom of competition in Egypt and which may represent an infringement to the provisions of the law.”
Moreover article 1 states “the exercise of economic activity shall be conducted in a way that does not prevent, or restrict or harm the freedom of competition according to the provisions of the law.”
ECA (Egyptian Competition Authority) went further to say that any contract between Uber and Careem regardless of its nature has the potential to restrict or eliminate competition in the country.
Moreover, the agreement could lead to change in the corporate control of the ownership inside as well as outside Egypt
ECA on 26th March 2019 received a formal communication from the Uber and the Careem.
They informed them that they have entered into a conditional purchase agreement pending a decision from the Egypt Commission Authority.
According to ECA, Neither Uber or Careem would implement the agreement until they render a final decision.
“They have also committed to complying with the Interim Measure Order (No 26 of 2018) rendered by ECA on October 22, 2018.” added ECA.
It will be interesting to see how this would take shape. Will ECA grant Uber’s acquisition or will it get heavily get fined like they did in Singapore? The worst-case scenario would be if Uber gets banned in Egypt.
Impacts of Uber-Careem deal
Uber’s acquisition of Careem marks the biggest technological deal in the MENA region. With such massive deal it’s obvious to have some repercussions.
So, let’s have a look at the impact of the Uber-Careem deal in the MENA region.
Monopoly prices
Prior to the acquisition, Uber and Careem were the leading taxi-hailing application based companies.
If acquisition gets a green flag from the MENA countries then it will mean that Uber won’t have any competition in the Middle-East.
Due to which Uber could possibly introduce monopoly prices. And these prices will be way higher than the existing ones.
If this happens then the commuters in the MENA region will be at a loss.
Room for new startups
After the acquisition, there won’t be a major company competing against Uber which will surely create a void in the taxi industry.
However, it will also provide a conducive environment for the new taxi startups to bloom. But how?
The dominance of Careem over Uber is the best example of that. Careem was a huge success because of the first mover advantage (Uber began its business one year after Careem), local knowledge, and a home advantage.
Careem developed their own mapping database for accurate taxi services as the existing maps weren’t as reliable as they are in the US and Europe.
Moreover, the people of MENA region supported the startup and treated it like a home-grown story due to its local roots.
So, any local startup can walk on the footsteps of Careem to give a strong competition to a new stronger Uber.
Advanced ride-hailing services
One positive outcome that can go in the customers’ favor is that the acquisition might result in an advanced ride-hailing services.
Careem is a successful local startup so it’s obvious that they have a technological edge over Uber.
But after the acquisition that edge would neutralize ultimately strengthening the Uber technological infrastructure.
Due to which we might see an advanced customer service which will be the combination of Careem’s local expertise & touch and Uber’s global standards.
Conclusion
Uber-Careem deal has finally taken place and is set to cause massive disruptions in the MENA region.
The deal still faces the threat of anti-competition laws of various MENA region countries. But it would be interesting to see the new dynamics of the taxi players in the MENA region.
Moreover, it would also be interesting to see the effect of this deal on Uber’s global business and their future strategies which includes a much-awaited IPO.
