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Private Equity

Uber approves SoftBank multibillion-dollar investment offer

Uber Technologies Inc. approved SoftBank Group Corp.'s offer to buy a multibillion-dollar stake in the ride-hailing company, setting the stage for one of the largest private startup share purchases ever.

The agreement lets SoftBank, the investment firm Dragoneer, and others invest at least $1 billion in Uber and proceed with a tender offer in coming weeks to buy up to $9 billion in shares from existing investors. The deal could still fall through if there aren't enough interested sellers. A slate of Uber governance changes hangs on the transaction closing.

"We've entered into an agreement with a consortium led by SoftBank and Dragoneer on a potential investment," Uber said in a statement. "We believe this agreement is a strong vote of confidence in Uber's long-term potential. Upon closing, it will help fuel our investments in technology and our continued expansion at home and abroad, while strengthening our corporate governance."

The terms were negotiated for weeks, according to people familiar with the matter who asked not to be identified talking about private deliberations. Uber's board was briefed on the terms Saturday and lawyers had been working to complete the language of the agreement, the people said.

As part of the deal, venture capital firm Benchmark agreed to put its lawsuit against Uber co-founder Travis Kalanick on hold and drop the complaint when SoftBank's investment and the governance reforms kick in, the people said. Mr. Kalanick is agreeing to give Uber's board majority approval over the board seats he controls should he ever need to fill them again, the people said.

The pact gets Uber closer to clearing a major hurdle as it tries to overcome a series of scandals, leadership turmoil and executive departures. SoftBank, a well-connected Japanese technology company, could help Uber strike deals with competitors in India or Southeast Asia. SoftBank is a major investor in Ola and Grab, Uber's rivals in those regions.

Uber's board already approved governance changes that restrict Mr. Kalanick's role at the ride-hailing company, including equalizing the voting power of different share classes and increasing the size of the board to 17 to allow for new independent directors. Those changes are contingent on SoftBank investing in Uber.

After a long negotiation with Uber, SoftBank agreed to buy shares at a single price as long as sellers were barred from working together to push up the price. Then Mr. Kalanick threw a wrench in the deal, insisting that Benchmark put a hold on its lawsuit against him before he would approve it. Finally, this week, Benchmark relented after Uber's new CEO Dara Khosrowshahi and other board members urged the firm to do so, two of the people said.

SoftBank, along with Dragoneer and General Atlantic, are expected to invest at least $1 billion in Uber and purchase up to $9 billion worth of Uber shares from existing investors. The initial price for the tender offer may not be set for more than a week, a person familiar with the matter said. SoftBank is expected to buy shares from Uber at the company's current valuation of nearly $70 billion, but the price of the secondary stock sale — in which existing investors sell — is expected to be lower.

Investors TPG, Tiger Global, DST Global and the Chinese company Tencent Holdings may also buy Uber shares as part of the deal, the people said.

There's still a lot of jockeying to be done before a tender offer goes through, and at least one existing Uber investor is already pushing for a rich valuation.

"There is value to fixing the governance problems, but that value should not be given to new outside investors through an undervalued tender offer," said Glen Kacher, president of Light Street Capital Management, which owns stock from Uber's Series E financing round.

Rajeev Misra, CEO of SoftBank's $93 billion tech investment fund, warned that the company could walk away if Uber shareholders demand too much. "By no means is our investment decided," he said in a statement on Monday. "We are interested in Uber but the final deal will depend on the tender price and a minimum percentage shareholding for SoftBank."

The transaction may make Mr. Kalanick a cash billionaire if he decides to sell a large enough chunk of his stake in the company. The deal could also be the largest private stock sale ever, and will create a host of new San Francisco millionaires as early employees sell shares.

Uber plans to run newspaper ads informing investors about the share purchase. Then SoftBank will propose a price at which it will buy stock. Uber shareholders will then have to decide if they want to sell and how many shares they want to offer. If SoftBank doesn't get enough buyers, it could propose a higher price or walk away.