Uber Shareholder Drops Lawsuit Against Kalanick, Clearing Way For Softbank Investment

Tyler Durden's picture

Tuesday’s meeting of the Uber Inc. board – the first following Kalanick’s unilateral decision to appoint former Xerox Corp. Chairwoman and CEO Ursula Burns and former Merrill Lynch Chairman and CEO John Thain – appears to have been a productive one.

Reuters is reporting that the board voted to move ahead with two issues, a change in governance rules, and an investment by Japan’s Softbank Group, which it was reported last month has been in talks to invest as much as $10 billion in the cash-burning ride-share giant.

To anyone who hasn’t been following the ongoing boardroom struggle between former Uber CEO Travis Kalanick, who was ousted after an investor revolt in June, and Benchmark Capital, these might seem like routine housekeeping matters.  

But in reality, they’re signs that two warring factions have agreed to put aside their differences - for now, at least - for the good of the company (not to mention their bank accounts). Benchmark has been trying to change the board's rules to try and limit Kalanick's power with the ultimate goal of ensuring he never returns as CEO. But today, Kalanick assented to the governance changes, albiet in a watered-down form. Meanwhile, Kalanick also gave his blessing to the Softbank deal, letting go of his reservations despite reports that Softbank had struck an agreement with Benchmark to do everything in its power to oppose Kalanick’s return as CEO as a condition of its investment, which should result in the Japanese company gaining control over at least one board seat.

Of course, by allowing both of these proposals to proceed, Kalanick is making some major concessions. What is he getting in return?

A lot, it turns out. In a separate report, Reuters said that Benchmark has agreed to drop its lawsuit alleging that Kalanick defrauded Uber’s investors. The lawsuit is related to how Kalanick managed to assert control over the two board seats to which he recently appointed Thain and Burns.

That’s a major win for Kalanick. And that's not all. As Axios later clarified, the governance changes approved by the board will limit his power, but wouldn't preclude the possibility of him ever returning to the helm the company.

But perhaps the most important outcome of this grand bargain is that it clears the path toward an IPO. As Axios noted, it’s the type of deal that leaves everybody feeling like a winner.

Here’s more on the governance proposal, courtesy of Axios:

What passed?

  • Super-voting rights are gone, which means shareholders are all "one share, one vote." Note that only early employees actually have shares, whereas over 90% have restricted stock units (which don't have any voting rights).
  • The board will be expanded significantly, which means Kalanick would need support of a majority of independent directors to ever regain the CEO spot or be named chairman.
  • If Uber doesn't go public by two years from now, share transfer restrictions are lifted.

What didn't pass:

  • Eliminating any path to the CEO or chairman seat for Kalanick, although it's now a much higher hurdle.

To be sure, just because Kalanick and Benchmark have put aside their differences (for now, at least) in the interest of guiding the company toward its inevitable public offering (an eventuality that holds substantial rewards for all parties involved) – doesn’t mean their plan will succeed. As we learned back in April, Uber is burning through an embarrassing amount of cash. And while an offering appears likely within the next 18 months, it could still be derailed by souring public sentiment, or the company’s disastrous finances.

In a statement addressing the meeting, Kalanick praised the board’s decisions, insisting that they were made in the best interest of the company.

 

And Uber's statement, courtesy of Axios:

"Today, after welcoming its new directors Ursula Burns and John Thain, the Board voted unanimously to move forward with the proposed investment by SoftBank and with governance changes that would strengthen its independence and ensure equality among all shareholders.

 

SoftBank's interest is an incredible vote of confidence in Uber's business and long-term potential, and we look forward to finalizing the investment in the coming weeks."

* * *

One person familiar with the matter said that a group of investors led by SoftBank will be allowed to buy $1 billion to $1.25 billion of new Uber shares at a company valuation of $69 billion and 14% and 17% of the company's stock from current investors at a discounted valuation.

Earlier media reports suggested Softbank would pay $1 billion at the $69 billion valuation, and $9 billion at a valuation closer to $50 billion.

However, while the prospects for the deal look promising, there’s still time for it to fall apart. If it does, how long before Kalanick’s relationship with Benchmark once again devolves into acrimony?

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Cluster_Frak's picture

Something is mega wrong with this company. It's like a Madoff scam 2.0, no way he could spend those billions. The money is in Isreal. Madoff 2.0 burns through billions and yet idiots keep feeding the fire with cash. It all ends up at one place and one place only.

knukles's picture

Well now that that's settled, we can catch up on our Lost in Space re-runs!

koan's picture

Each shareholder also gets to kick Travvy in the nuts once.

Herp and Derp's picture

Hmm... Is there anyway to pre-short an IPO?

Larry Dallas's picture

I don’t see Uber winning in the long term.

I think Lyft is the hare that will beat the tortoise here.

Vardaman's picture

Uber's message to anyone who is paying attention: "We are in the soap opera business..."