In the most bizarre deal news of the day, Bloomberg reports that in what is supposed to be a repeat of Warren Buffett’s 2008 “bailout” of Goldman Sachs, the Berkshire boss proposed investing $3BN in Uber but the deal fell apart as a result of “disagreements over terms and size of the deal.”
It appears that Buffett felt that the “reputationally-challenged” Uber, which continues to burn through massive amounts of cash, would jump at the opportunity of having an investor of Buffett’s “pristine moral stature” – think Canada’s near insolvent Home Capital Group – by lending Uber what Bloomberg dubbed “his sterling reputation”, along with some capital, “in exchange for cushy deal terms”, or in other words, a distressed investment.
Explicitly modeled after Buffett’s $5 investment in Goldman, which generated a $1.6BN profit in preferred stock returns and an even greater profit in warrants, under the proposed deal, Berkshire would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, Bloomberg reports; furthermore, Buffett’s initial offer was well above $3 billion, although perhaps Buffett was simply confused and did not realize early on that Uber does not engage in stock buybacks, a favorite strategy of the Omaha billionaire ever since his IBM and Apple investments.
Eventually, as part of the proposed deal, which took place in the post-Kalanick era, Uber’s new CEO Dara Khosrowshahi proposed reducing the size of Buffett’s investment to $2 billion, in hopes of just renting Buffett’s name while giving him a smaller share of the company. The deal fell apart after the two sides couldn’t agree on terms, one of the people said.
The deal discussions, which ultimately fell apart, took place as Uber was pursuing a $1.5 billion term loan which closed in March as a source of additional funding in addition to the company’s large, but declining $6.3BN cash hoard; “the Berkshire discussions show the company’s continued appetite for capital” Bloomberg adds, although it was not clear what for. Meanwhile, Uber had also just received $1.25 billion from a deal with SoftBank in January, as part of which SoftBank and its consortium purchased $8 billion in Uber stock from existing shareholders.
One wonders what existing Uber owners knew that prompted them to sell the stock at a valuation haircut, at a time when Buffett was sniffing around, also hoping to invest at what was effectively a substantial discount.
Ultimately, the fact that Uber’s liquidity crunch had been temporarily resolved is what killed the Buffett deal:
Coming so soon after that cash infusion, Buffett’s attempt to take a stake in Uber while it was on the rocks may have been too late to squeeze favorable terms from the company.
Uber, which for much of 2017 developed a reputation of a hotbed of unwarranted sexual assaults and immature executives under now former CEO Kalanick, has managed to regain some footing under new CEO Dara Khosrowshahi, who joined the company in September 2017, and who managed to help “calm disputes” among Uber’s board by pushing the company beyond its relentless recent crises.
With Didi and Lyft breathing down the company’s neck, Khosrowshahi mounted a global apology tour, running advertisements that feature the CEO speaking directly to the camera, promising that the Uber is turning over a new leaf. Meanwhile, Uber – which still has no CFO – continues to burn massive amounts of cash as the company’s investors continue to directly subsidize each and every car ride in hopes of eventually monopolizing market share and regaining much needed pricing power.