Uber Shareholder Drops Lawsuit Against Kalanick, Clearing Way For Softbank Investment

Tuesday’s meeting of the Uber Inc. board – the first following Kalanick’s unilateral decision to appoint former Xerox Corp. Chairwoman and CEO Ursula Burns and former Merrill Lynch Chairman and CEO John Thain – appears to have been a productive one.

Reuters is reporting that the board voted to move ahead with two issues, a change in governance rules, and an investment by Japan’s Softbank Group, which it was reported last month has been in talks to invest as much as $10 billion in the cash-burning ride-share giant.

To anyone who hasn’t been following the ongoing boardroom struggle between former Uber CEO Travis Kalanick, who was ousted after an investor revolt in June, and Benchmark Capital, these might seem like routine housekeeping matters.  

But in reality, they’re signs that two warring factions have agreed to put aside their differences - for now, at least - for the good of the company (not to mention their bank accounts). Benchmark has been trying to change the board"s rules to try and limit Kalanick"s power with the ultimate goal of ensuring he never returns as CEO. But today, Kalanick assented to the governance changes, albiet in a watered-down form. Meanwhile, Kalanick also gave his blessing to the Softbank deal, letting go of his reservations despite reports that Softbank had struck an agreement with Benchmark to do everything in its power to oppose Kalanick’s return as CEO as a condition of its investment, which should result in the Japanese company gaining control over at least one board seat.

Of course, by allowing both of these proposals to proceed, Kalanick is making some major concessions. What is he getting in return?

A lot, it turns out. In a separate report, Reuters said that Benchmark has agreed to drop its lawsuit alleging that Kalanick defrauded Uber’s investors. The lawsuit is related to how Kalanick managed to assert control over the two board seats to which he recently appointed Thain and Burns.

That’s a major win for Kalanick. And that"s not all. As Axios later clarified, the governance changes approved by the board will limit his power, but wouldn"t preclude the possibility of him ever returning to the helm the company.

But perhaps the most important outcome of this grand bargain is that it clears the path toward an IPO. As Axios noted, it’s the type of deal that leaves everybody feeling like a winner.

Here’s more on the governance proposal, courtesy of Axios:

What passed?

• Super-voting rights are gone, which means shareholders are all "one share, one vote." Note that only early employees actually have shares, whereas over 90% have restricted stock units (which don"t have any voting rights).


• The board will be expanded significantly, which means Kalanick would need support of a majority of independent directors to ever regain the CEO spot or be named chairman.


• If Uber doesn"t go public by two years from now, share transfer restrictions are lifted.

What didn"t pass:

• Eliminating any path to the CEO or chairman seat for Kalanick, although it"s now a much higher hurdle.

To be sure, just because Kalanick and Benchmark have put aside their differences (for now, at least) in the interest of guiding the company toward its inevitable public offering (an eventuality that holds substantial rewards for all parties involved) – doesn’t mean their plan will succeed. As we learned back in April, Uber is burning through an embarrassing amount of cash. And while an offering appears likely within the next 18 months, it could still be derailed by souring public sentiment, or the company’s disastrous finances.

In a statement addressing the meeting, Kalanick praised the board’s decisions, insisting that they were made in the best interest of the company.

travis kalanick statement pic.twitter.com/uXzLDYX0uJ

— ?_? (@MikeIsaac) October 3, 2017

And Uber"s statement, courtesy of Axios:

"Today, after welcoming its new directors Ursula Burns and John Thain, the Board voted unanimously to move forward with the proposed investment by SoftBank and with governance changes that would strengthen its independence and ensure equality among all shareholders.

SoftBank"s interest is an incredible vote of confidence in Uber"s business and long-term potential, and we look forward to finalizing the investment in the coming weeks."

* * *

One person familiar with the matter said that a group of investors led by SoftBank will be allowed to buy $1 billion to $1.25 billion of new Uber shares at a company valuation of $69 billion and 14% and 17% of the company"s stock from current investors at a discounted valuation.

Earlier media reports suggested Softbank would pay $1 billion at the $69 billion valuation, and $9 billion at a valuation closer to $50 billion.

However, while the prospects for the deal look promising, there’s still time for it to fall apart. If it does, how long before Kalanick’s relationship with Benchmark once again devolves into acrimony?

Look Who Kalanick Just Appointed To The Uber Board Without Consulting Anyone

It looks like Travis Kalanick is preparing for all-out war in the Uber boardroom.

The Uber co-founder and former chief executive officer - who retains control over three board seats, including his own - has finally filled his long-vacant seats. And guess whom he picked to fill them? Former Xerox Corp. Chairwoman and CEO Ursula Burns...and former Merrill Lynch Chairman and CEO John Thain, "ratcheting up a Machiavellian battle for control of the world’s most valuable startup" as Bloomberg put it. Uber immediately challenged the appointments, calling them "a complete surprise."

“I am appointing these seats now in light of a recent board proposal to dramatically restructure the board and significantly alter the company’s voting rights,” Kalanick said in a statement emailed to Bloomberg. “It is therefore essential that the full board be in place for proper deliberation to occur, especially with such experienced board members as Ursula and John.”

As many may remember, Thain was the last CEO and chairman of Merrill Lynch before it was absorbed by Bank of American during the financial crisis. The last leader of an independent Merrill Lynch was roundly criticized for the same venal behavior as other too-big-to-fail CEOs - BOA paid a $16.7 billion fine in 2014, at the time the largest single settlement in US history, partly for Merrill"s witholding of crucial information (namely, that the products were stuffed with garbage subprime loans while being marketed as AAA) to buyers of its MBS and CDO products. There was, of course, also the whole $35,000 "commode on legs" incident as part of Thain"s $1.2 million office redecoration (which also included $17,100 traveling toilet boxes and a $15,000 dog umbrella stand).

Thain was, appropriately, singled out for criticism by former President Barack Obama, who accused him of "lining his pockets" - and those of his employees - at the taxpayers" expense by handing out massive bonuses after BofA accepted $45 billion in TARP funds.

Kalanick - who resigned as CEO on June 20 after a longrunning battle between him and the company"s largest shareholder, Benchmark Capital - is making the appointments without consulting the rest of the board, according to the Wall Street Journal, which broke the story. He was granted control of three board seats as part of $3.5 billion investment from a Saudi wealth fund in 2016.

The appointment is particularly controversial because Kalanick is presently being sued by Benchmark, who claim he mislead the company"s investors in order to gain control over an additional board seat, and as such the appointments appear to be the latest salvo in Kalanick"s war with Benchmark.

As WSJ noted, the appointments could serve to push back against Benchmark, which also holds a board seat and led other members in a coup to push Kalanick out, which has proposed a new voting structure for shareholders allowing them to vote based on the size of their stake, rather than the current system which rewards the earliest investors with greater voting power. Travis confirmed as much in a statement to WSJ, when he said he believed the "full board should be in place" before boardmembers vote on the proposal.

“I am appointing these seats now in light of a recent board proposal to dramatically restructure the board and significantly alter the company’s voting rights,” Mr. Kalanick said in the statement. “It is therefore essential that the full board be in place for proper deliberation to occur, especially with such experienced board members as Ursula and John.”

It"s also notable that the appointments come just days after Softbank, which is in talks to potentially invest as much as $10 billion in the cash-burning ride-sharing company, reportedly struck a deal with Benchmark to do everything in its power to oppose Kalanick"s efforts to be reinstated as CEO if it becomes an Uber shareholder and gains a board seat.

According to Bloomberg, Uber expressed concern at Kalanick’s announcement: "The appointments of Ms. Burns and Mr. Thain to Uber’s board of directors came as a complete surprise to Uber and its board," the company said. “That is precisely why we are working to put in place world-class governance to ensure that we are building a company every employee and shareholder can be proud of.”

Uber’s board had been scheduled to vote Tuesday on a plan to revamp the company’s corporate governance, a person familiar with the matter said.

Kalanick remains supportive of Khosrowshahi, the person said. The former CEO saw the two appointments as a way to improve the company’s board of directors ahead of the impending vote on Uber’s governance structure, the person said.

To be sure, Kalanick has reportedly told friends and family that he has no intention of returning as CEO - though he might be interested in some kind of senior-level operations position. However, his actions would suggest something entirely different. Of course, considering the astounding run of scandals that erupted under his watch - from claims of sexual harassment, a federal bribery investigation, and the revelation that Uber intentionally blocked law enforcement agents from using its app - the notion of Kalanick returning as CEO seems almost incongruous. Since leaving, his legacy has only been further tarnished by the London taxi regulator"s decision to revoke the company"s operating license, citing abuses that largely occurred during his tenure.

But regardless of whether Kalanick"s ultimate aim is to return as CEO, there"s a more pressing matter at hand: Preventing Benchmark, his primary boardroom nemisis, from asserting even more control even as skepticism continues to grow about the mega valuation of the cash-burning, regulator-flouting Silicon Valley unicorn he helped create.