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Uber a Step Closer to Buying Middle Eastern Rival Careem

Zacks Equity Research

Uber Technologies UBER has moved a step closer to buying Dubai-based firm, Careem, following the conditional approval of the same from Egyptian regulator — the Egyptian Competition Authority (“ECA”).

Notably, Uber, based in San Francisco, CA, inked a deal to acquire Careem — a provider of ridesharing, meal delivery and payment services across the Middle East, North Africa and Pakistan — for a total consideration of roughly $3.1 billion. Out of $3.1 billion, approximately $1.4 billion will be in cash and the balance will be paid through non-interest-bearing unsecured convertible notes. Notably, both Uber, which competes with the likes of Lyft LYFT in the ride-hailing space, and Careem have operated in Egypt since 2014.

The deal, announced in March, is expected to close in January 2020. Following the closure, Careem will become a wholly-owned subsidiary of Uber. However, it will continue to function with independent management and as an independent brand.

The Egyptian competition watchdog, however, gave its nod to the impending merger subject to certain conditions. Per the conditions, if the companies decide to raise prices they will have to comply with an ECA-imposed cap. Moreover, the maximum value of the surge multiplier cannot exceed 2.5. Notably, surge pricing implies a situation where ride fares become more expensive than usual due to very high demand. Moreover, the number of trips to which such a pricing strategy is applicable cannot exceed 30% of the total trips. ECA has the right to intervene and lower the percentage.

Furthermore, the ECA prohibited the companies from deducting commissions from the drivers in excess of the current rate to protect the rights of the drivers. Moreover, in a bid to preserve competition in the local market, the ECA stated that the new competitors will have access to Uber’s mapping and trip data, among other things.

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