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Uber Agrees in Principle to Exit Southeast Asia for Stake in Rival -- Update

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03/09/2018 | 01:28am CEST

By Greg Bensinger, Newley Purnell and Julie Steinberg

Uber Technologies Inc. has reached an agreement in principle to sell most of its Southeast Asia operations to local rival Grab Inc., ending a costly fight for market share in the fast-growing region, according to people familiar with the matter.

In exchange for its operations in Southeast Asia, Uber would gain a roughly 30% stake in Grab, these people said. The two companies are still hashing out the final terms of the pact, the people said, cautioning any deal would be subject to regulatory scrutiny. One of the people said Uber's stake in Grab could wind up being smaller.

Uber was spending some $200 million annually to take on Grab and another upstart in the region, PT Go-Jek Indonesia, two of the people said. Go-Jek, a motorcycle-taxi service based in Indonesia, recently raised more than $1 billion in funding from KKR & Co. and Tencent Holdings Ltd., among others.

Uber and Grab spokeswomen declined to comment.

Bloomberg News earlier reported a deal was near to being reached.

A deal could relieve pressure on Uber's new chief executive, Dara Khosrowshahi, who is trying to shore up the company's finances ahead of an expected 2019 initial public offering. Uber posted a net loss of $4.46 billion in 2017 on sales of $7.36 billion.

Since taking the helm in September, Mr. Khosrowshahi reached an agreement to sell the company's money-losing car leasing business in the U.S. and settled a distracting lawsuit from Alphabet Inc. over allegedly stolen trade secrets.

In recent weeks, Mr. Khosrowshahi vowed to keep fighting for market share in Southeast Asia, even in the face of hefty losses.

"We expect to lose money in Southeast Asia and expect to invest aggressively in terms of marketing, subsidies," he told reporters during a visit to New Delhi last month. Earlier in the month he said Uber was investing hundreds of millions of dollars in the region but that it is difficult to compete against locals.

"The economics of that market are not what we want them to be," said Mr. Khosrowshahi.

Uber has shown a willingness to cut its losses in markets where it is struggling to maintain market share. Last year it reached a deal to merge its Russian operations with Yandex.Taxi, forming a joint venture with parent company Yandex NV in exchange for a nearly 37% stake. And in 2016 it sold its Chinese business to Didi Chuxing Technology Co., amassing a 20% stake in Didi in the deal.

The talks with Grab involve all of Uber's major assets in the region, but a final deal could exclude small pieces of the Southeast Asian operations, people familiar the discussions said.

A deal would speak to the investment strategy of SoftBank Group Corp., which took a 15% stake in Uber in January for $7.7 billion. The Japanese firm is also a major stakeholder in Grab, Didi and ANI Technologies Inc.'s Ola, whose home market is India.

Beijing-based Didi is expanding to Japan in competition with Uber and recently bought out Brazil's 99Taxis, a popular taxi cab app. Meanwhile, Ola and Uber are duking it out in Australia.

Uber, which is based in San Francisco, expects to seat Sprint Corp. chief Marcelo Claure and SoftBank partner Rajeev Misra on its board after a review of the SoftBank deal is completed by the Committee on Foreign Investment in the U.S.

Uber and Grab have been racing to dominate the roads of Southeast Asia, home to 600 million people. The region's ride-hailing market is forecast to grow more than five times to $13.1 billion by 2025 from $2.5 billion in 2015, according to a report from Alphabet's Google and Singapore state-investment firm Temasek Holdings.

While Uber has tangled with regulators around the globe, Grab says it works closely with government authorities and better understands local habits. In the Philippines, for example, it offers rides on widely popular motorcycles with covered sidecars.

Grab has more monthly active users across much of the region than Uber, according to app analytics firm App Annie. A May 2017 report from consultancy Bain found users across Southeast Asia prefer Grab to Uber.

In Indonesia, the region's biggest country by population, both Uber and Grab are also grappling with GoJek. GoJek has rapidly expanded from offering transportation to services such as package and food deliveries.

--P.R. Venkat contributed to this article.

Write to Greg Bensinger at [email protected], Newley Purnell at newley.purnell @wsj.com and Julie Steinberg at [email protected]

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