by Virat Bahri__
- Ola founder Bhavish Aggarwal is considering new investors as he tries to resist possible control of the company by Softbank.
- Softbank is also a major investor in Uber and wants a merger of the two in India
- If they merge, Ola and Uber will control around 90-95% of India’s cab hailing market.
- Cab aggregator Ola has received an investment of Rs 520 crore (US$ 74 million) from Hong Kong-based Steadview Capital, which values it at around US$ 5.5-6 billion.
- Does business logic favour merger, and Bhavish needs to move out of the way and exit the company?
Since its inception in 2010, Ola has raised over US$ 3.4 billion across 18 funding rounds. But the current round has a distinct flavor to it. Quite interestingly, there is a US$ 1 billion funding amount dangling in front of Ola that it doesn’t want.
It is obvious that Ola needs the money. But Bhavish Aggarwal has a problem with the source, which is Softbank, Ola’s largest institutional stakeholder.
Bhavish fears that the growing influence of Softbank which already owns 26% in Ola. Therefore, he is scouting for other investors including Flipkart cofounder Sachin Bansal, Steadview Capital and Singapore’s sovereign wealth fund Temasek.
In 2017, Softbank tried to buy more stake in Ola from Tiger Global, which was done without Bhavish’s approval, and he blocked the deal. After that Bhavish has made changes to the Articles of Association to prevent a possible sale or merger.
The founders have around 11% stake in the company. Bhavish has reportedly acquired voting rights from Sachin Bansal and Singapore’s Temasek Holdings (7-8%) and Yuri Milner of Russia through DST Global (6%). With this, he has ensured a voting power of around 25% to match SoftBank’s 26%.
Incidentally, Masayoshi Son-owned Softbank is also a major shareholder in Uber with around 15% stake post its investment in January 2018, and the main agenda is to push for a merger of Ola and Uber in India.
Softbank has already ensured that Uber exits its businesses in China and South East Asia by selling them to Didi and Grab (which are both part of Softbank’s portfolio) respectively. India is a different ball game, and Uber CEO Dara Khosrowshahi fondly calls the country one of Uber’s healthiest markets.
For Softbank, the rationale is obvious – it is investing in two players fighting a tough price war that’s only draining its resources. But should Bhavish really be averse to the idea?
India’s top two ride hailing companies (Ola & Uber) are facing a steep slowdown. The number of rides per day grew by 20% year-on-year in 2018 including all segments to reach 3.5 million. This compares to 57% in 2017 and 90% in 2016.
Both companies have increased their prices from an average of Rs 10/km to Rs 15/km in 2017-18 to improve unit economics. This has come at the cost of demand. Furthermore, they have reduced driver incentives by 40%, which has squeezed supply.
Ola has seen its losses increase to Rs 4,897.8 crore in 2016-17 (Rs 3,149.9 crore in 2015-16) despite a growth of 70% yoy in income. To counter the slowdown, it is looking at new growth avenues like food delivery, bike rentals and e-pharmacy apart from global expansions.
The merged entity would control 90-95% of the cab aggregator market. It will enjoy the power to set prices and have higher leverage over drivers with better incentives. This will also help their foodtech ventures UberEats and Foodpanda.
Though business logic strongly supports the merger _
Is Bhavish’s penchant for control spoiling the party for Softbank? OR is it time for him to simply move out of the way and take an inconspicuous exit?
For further analysis on the cab-hailing market, take a look at ET report on this link.