8 December 2017 - ComfortDelGro Corporation Limited and Uber Technologies, Inc. today announced that they have entered into a strategic agreement to joint venture that brings together one of the world's largest land transportation companies with the world's leading ridesharing service to leverage their operational and technological excellence.
Under the agreement, CDG will acquire a 51% stake in Uber's wholly-owned car rental subsidiary, Lion City Holdings Pte Ltd which has a fleet about 14,000 vehicles for a cash consideration estimated at S$295 million (based on the NAV of S$642 million based on the value of 12,450 vehicles). LCR will be able to benefit from CDG's fleet management and operation while CDG taxi's driver will be able to receive ride requests on the Uber driver application, increasing their potential earnings.
This deal is CDG's single largest deal-to-date.
Currently, they are finalizing on the additional partnership opportunities and will make further announcements in the upcoming months.
CDG's price had been badly beaten down in the recent week, dropping to
their new 52W low and closing at 1.91 today. Just moments ago, they've
finally released the news on the strategic alliance - announcing that
CDG and Uber has entered into a strategic agreement.
I've been in the queue today, queuing at 1.90, hoping to nibble a little bit more on CDG's share. Unfortunately, my queue is not filled.
I'm having some mixed feelings with regards to the announcement made. With the partnership confirmed, this will allow CDG's driver to tap onto Uber's network for more bookings. While this event does not directly creates more revenue for ComfortDelGro, it helps by protecting the existing taxi drivers' interest as well as preventing more drivers from leaving which will result in further decrease in revenue for their taxi business.
I'm a little surprised by the decision that CDG has acquired a big fraction of Uber's business in Singapore.
On paper, it look like a good deal having to acquire 51% stake of 12,450
relatively new vehicle. A simple calculation will bring me to the sum
of 46k/car - based on (295m/51%/12450 vehicles).
Looking at the other side - the acquisition of LCR. LCR's fleet of vehicle is relatively new and I'm pretty interested to know on how many cars are exactly rented out. Without a number it's a little difficult to determine if this is a lucrative acquisition. Only when more numbers are revealed, the directions will be clearer.
Acquiring a 51% stake is pretty big here and a question will come if they will be able to recover their investment. Also, to remember that the rental price in LCR is cheaper and provides a lower margin. A big question also come by when CDG is having difficulty in managing their own fleet of vehicles and they're currently acquiring more vehicles.
Back to basics, as a consumer point-of-view, I believe most people that uses private hirer like Grab/Uber is using them because of the cheap prices and the ease of getting one. Having a price war is inevitable for companies like Grab/Uber who wants to steal a pie of CDG's plate. Hence, coming to the real issue here, it's the battle between prices. When lesser people is taking CDG's taxi, the drivers are earning lesser, and when the option of earning more comes (Uber/Grab), they will be jumping to another boat, which is why CDG is facing this problem now. However, if they were to reduce the rental fees, this will impact on their earnings negatively.
Before any much comments on how lucrative or not this acquisition is, I believe that as a shareholder, it is a good that the management is taking an approach to deal with a problem. I'll be looking to more updates from CDG to get a clearer picture of the situation.
CDG's announcement can be found here.
CDG's Media release on strategic alliance can be found here.
Business Times news on CDG's alliance can be found here.