SoftBank Thinks Some Uber Shares Are Worth More Than Others
This post originally appeared in Money Stuff.
If a group of investors led by SoftBank Group Corp. buys some shares from Uber Technologies Inc. at a $68 billion valuation, and it buys some other shares from existing investors in a tender offer at a $50 billion valuation, then how much is Uber really worth? There is an objectively correct answer to this question, which is, "who cares": A willing buyer paid one price for some shares and another price for some other shares and all the willing sellers got the amount of money they agreed on, and putting a headline number on the whole thing is just meaningless scorekeeping. But of course people love scorekeeping, particularly in the Enchanted Forest of the Unicorns: Since Uber's stock doesn't trade on an exchange, there is no public record of its value changing from day to day, and it can point to its last fundraising round as its still-current "official" valuation, whatever has happened since. But if it does a new round at a lower price, it won't be able to play that game any more. And as Uber gets closer to an initial public offering, that game becomes more important: It's harder to argue for an $80 billion IPO after a $50 billion private down-round.
There are two separate things going on here. One is that the shares SoftBank is buying from Uber are actually worth more than the shares it is buying from existing investors. If Uber buys common stock from early-round investors, it should pay less than it would pay for late-series preferred stock with a high liquidation preference. In theory, if Uber is sold or liquidated for less than $68 billion, that late-series preferred will be paid off at a $68 billion valuation before the common stock gets anything. (In practice, the only viable exit for Uber is in an initial public offering that would collapse those share classes, so don't take that preference too literally.) Two academics recently did a study of unicorn valuation terms and argued that most unicorns' headline valuations were significantly higher than the actual implied value of their stocks; they calculated a "real" value for Uber of $60.6 billion, versus its $68 billion headline valuation.
The other thing that is going on here is that Uber has probably become less valuable since its last fundraising round at a $68 billion valuation, which occurred before a lot of scandals that undermined Uber's story and caused it to get rid of its founder-chief-executive-officer, Travis Kalanick. So Uber might "really" be worth only $50 billion (roughly SoftBank's target area for its tender offer valuation), and SoftBank might be overpaying for the shares from the company in order to let it save face. This is a little awkward: Presumably SoftBank has some blended valuation that it is willing to pay, and the more money it spends on overpaying Uber, the more it has to underpay the selling shareholders in order to get an acceptable blended price. Arguably the fairer approach would be to buy all the shares from everyone at a market-determined price, but I guess Uber is within its rights to demand more for itself and less for the shareholders who are, after all, cashing out early.
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