Benchmark signals it won't sell its stake, impeding investment by Japanese group

By Greg Bensinger 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 22, 2017).

As Uber Technologies Inc. works to nail down a multibillion-dollar investment from Japan's SoftBank Group Corp., one of the ride-hailing giant's earliest and biggest shareholders has indicated it doesn't intend to sell.

The opposition by Benchmark Capital is complicating a proposal by SoftBank and its $93 billion tech-focused Vision Fund, along with partners, to buy 17% to 22% of Uber -- mostly through purchasing shares from existing shareholders.

Benchmark has told fellow investors it is unlikely to sell any of its 13% holding to the SoftBank consortium, according to people familiar with the matter. Benchmark's representative on Uber's board, Matt Cohler, was the only one of Uber's eight directors to vote against a term sheet granting SoftBank exclusive rights to an investment deal, the people said.

The venture firm has been pushing to ensure the deal results in more independent board seats and additional rights for all shareholders, including broader voting power, according to people familiar with the matter.

Benchmark, along with a few other early investors, holds outsize voting power relative to its stake.

The proposed investment by the SoftBank group, which could total as much as $10 billion, hinges on getting enough existing investors to sell their shares at what amounts to a 30% discount to Uber's most recent valuation of nearly $70 billion, people familiar with the terms said.

That would risk devaluing whatever equity shareholders don't sell to SoftBank. To try to assuage those concerns, SoftBank also has proposed directly investing at least $1 billion into Uber at roughly the $70 billion valuation as part of the deal, the people said. In addition to the stake, SoftBank is seeking two board seats.

The Wall Street Journal reported last week that resistance from some investors was impeding the SoftBank deal talks. But Benchmark's position on the matter couldn't be determined then.

Benchmark's stance could put a chill on other stakeholders who might otherwise view the SoftBank deal as a rare opportunity to cash in. Uber has generally restricted investors from such so-called secondary share sales.

Travis Kalanick, the Uber co-founder who was pushed out as chief executive in June under pressure from Benchmark, also is unlikely to sell any of his approximately 10% stake, according to people familiar with the matter.

That means that roughly one-quarter of Uber shares would be unavailable to SoftBank, which has teamed up with Dragoneer Investment Group and private-equity firm General Atlantic for the proposed investment.

Two directors, chairman and co-founder Garrett Camp and early employee Ryan Graves, are expected to sell at least some of their stake to SoftBank, according to the people familiar with the matter.

For most venture-capital firms, Benchmark's return on its Uber holdings is the stuff of dreams, even at a discount. Its investment of $27 million six years ago is worth about $8.4 billion on paper today, according to other investors. Selling some of that could shelter Benchmark from the risk of a drop in Uber's stock following an initial public offering, as has happened after some tech firms went public recently. New Uber CEO Dara Khosrowshahi has said the company could go public in as little as 18 months.

But San Francisco-based Benchmark said in August it believed Uber's valuation could eventually top $100 billion.

Other investors have privately cited that lofty expectation as a reason they may not sell to SoftBank in the tender offering.

Some people close to the deal talks cautioned it was possible they could fall apart entirely.

Benchmark has proved itself an unpredictable investor. It sued Mr. Kalanick weeks after helping oust him, saying he reneged on an agreement to return to board oversight three board seats he controls. The suit is being sent to private arbitration.

The suit divided Uber directors, many of whom were surprised when Benchmark filed it in early August. Benchmark alleged Mr. Kalanick defrauded investors by not telling them about questionable business practices like a program to evade authorities using a fake version of the Uber app.

Mr. Kalanick argued in court papers that the suit is a meritless, personal attack. He is contesting the suit and has indicated he has no plans to turn over the board seats.

The new CEO, Mr. Khosrowshahi, hadn't yet been named when the possible SoftBank deal started coming together following weeks of discussion, but he is broadly supportive, according to people familiar with the matter.

For SoftBank, a deal with Uber would give it a stake in all of the largest global ride-hailing firms. And it already has directors on the boards of ANI Technologies Pvt.'s Ola and GrabTaxi Holdings Pte., which compete with Uber directly in India and Singapore and Southeast Asia, respectively.

--Mayumi Negishi contributed to this article.

Write to Greg Bensinger at greg.bensinger@wsj.com

(END) Dow Jones Newswires

September 22, 2017 02:47 ET (06:47 GMT)