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Uber buys Middle East rival Careem for $3.1 billion

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Uber Technologies Inc. has confirmed reports that surfaced on March 24 about its acquisition of Middle East on-demand cab hailing rival Careem for $3.1 billion, signaling its market domination in the region, and right in time for its initial public offering (IPO), which is expected this year.

In a development late Monday night, Uber stated that it would be paying $1.4 billion in cash and $1.7 billion in convertible notes with the deal giving the U.S. cab-hailing giant full control over Careem. The notes can be converted to cash at a price of $55 per note, which is 13 percent more than what Uber’s shares went for in its last investment round led by SoftBank Group.

Uber has mentioned in a statement that the transaction process is expected to close by the first quarter of 2020. This means that the acquisition will not reflect on the company’s financial results over the first few quarters as a public company, but the impact of the acquisition is expected to have a bearing on its stock value post-IPO.

This high-profile acquisition has been finalized after nine months of negotiations between the two companies and provides Uber a strong foothold in the Middle East – a welcome change after selling off its operations in China, Southeast Asia and Russia due to untenable margins and stiff local competition. Careem will become a wholly owned subsidiary of Uber, operating as an independent company under the Careem brand and reporting to a board made up of three representatives from Uber and the two co-founders of Careem.

“This is an important moment for Uber as we continue to expand the strength of our platform around the world. With a proven ability to develop innovative local solutions, Careem has played a key role in shaping the future of urban mobility across the Middle East, becoming one of the most successful startups in the region,” said Dara Khosrowshahi, CEO of Uber, in the statement. “Working closely with Careem’s founders, I’m confident we will deliver exceptional outcomes for riders, drivers, and cities in this fast-moving part of the world.”

Careem’s acquisition is a milestone for Uber not just in the context of global market dominance, but in leveraging the investment to increase consumer interest in the company once it goes public. Then again, beneath this silver lining, Uber has had to contend with several issues regarding administrative regulations and heavy market competition from across the world –  stifling its growth and reducing profit margins.

The rivalry trajectory between Careem and Uber was quite similar to what transpired in other markets. Both companies were in the habit of artificially pushing prices down to attract more consumers and launched additional services like food delivery to increase reach and revenue. Incidentally, Careem had doubled its valuation in just over a year between two investment rounds, expanding operations across 15 countries spanning the Middle East, North Africa and South Asia. Careem was planning to raise another round of financing before Uber came in and bought out the company.

The Middle East presents immense digitalization possibilities as millions of people get access to the internet for the first time in the region. Mudassir Sheikha, the CEO and co-founder of Careem, stated that the acquisition would help the company tap into those opportunities and “serve as a catalyst for the region’s technology ecosystem by increasing the availability of resources for budding entrepreneurs from local and global investors.”

Careem would be the Middle East’s first successful multi-billion dollar exit. Apart from its cab-hailing services, Careem also runs a last-mile delivery service called Careem NOW and a digital payment platform called Careem Pay. With the acquisition of Careem, Uber will also take control of these services and may expand them under the Careem brand, operating it as a wholly owned subsidiary.