Ride-hailing company Uber, which has been exploring the prospects of a tie-up with Dubai rival Careem, is leaning towards an acquisition rather than a merger of the company, to widen its presence in the Middle East.
While no final decisions have been made, San Francisco’s Uber is looking at an acquisition of Careem in a deal that may be worth $1.5 billion to $2bn, according to sources.
Uber’s decision not to merge is based on its assessment that the company’s presence in the Middle East is large enough and does not warrant an exit – as the company did when it left other markets because of intense competition and high operational costs.
The company’s chief executive Dara Khosrowshahi has also said the company would not retreat from additional markets apart from Russia, China and South East Asia.
“We are going to be, I believe, the winning player in those markets [India, the Middle East and Africa] and we’re going to control our own destiny,” Mr Khosrowshahi said in May.
Uber exited other countries because it had a smaller market share and was burning a lot of cash.
The company had spent nearly $11bn by the start of this year and consolidation meant spending less and eventually being in a position to control prices. In March, Uber reached a deal with Grab, with the South East Asian company acquiring all of its operations in exchange for the US company receiving a 27.5 per cent stake in Grab.
“It’s a super-competitive environment and a no-win situation for anybody. So they take a chunk of a company,” a source said.
“In the Middle East they don’t feel they are smaller than Careem but bigger and of a substantial size, so they say ‘why should we exit the market? Careem should merge into us’ and Uber’s brand remains in the market.”
Combined, the two companies burn about $400 million a year in the region, according to a source.
Both Careem and Uber declined to comment.
Careem, which was founded six years ago, serves 12 million customers in 80 cities in countries that range from Pakistan to Turkey, Lebanon, Saudi Arabia, Jordan, Egypt and Morocco.
Careem has also attracted a $62m investment from Kingdom Holding, the Saudi publicly listed investment firm of billionaire businessman Prince Alwaleed bin Talal, which took a 7.1 per cent stake.
Careem also struck a strategic partnership with Chinese ride-hailer and technology conglomerate Didi Chuxing as the Asian giant invested in the Dubai company, which will have access to Didi’s artificial intelligence expertise.
Careem raised US$350m in December 2016 from investors including Japanese e-commerce leader Rakuten and Saudi Telecom, giving the company a $1bn valuation. In May it was reportedly in talks with investors to further raise $500m, that would push its valuation to $1.5bn.
Although there has been speculation over Careem going public, chief executive Mudassir Sheikha denied a listing was on the horizon in an interview with The National in January.
Japan’s SoftBank, which has a stake in Grab and India’s Ola, is the majority stakeholder in Uber, which is eyeing a listing next year.