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Tuesday, 04 August 2020

Giving the nod to Uber-Careem deal

Almost nine months after the deal was finalised, Egypt’s competition authority gives conditional approval to Uber’s acquisition of Careem, reports Bassem Aly

Bassem Aly , Wednesday 8 Jan 2020
Giving the nod to Uber-Careem deal
Giving the nod to Uber-Careem deal
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The Egyptian Competition Authority (ECA) on Sunday finally approved Uber’s $3.1 billion deal in March to acquire Careem, its Middle East rival in the ride-hailing business, after disagreements that lasted for months.

Uber agreed to abide by a number of conditions imposed by the ECA to safeguard the rights of riders, drivers and investors, as well as to encourage innovation and entry onto the market, according to a statement released by the ECA.

The US-based multinational company offers services such as peer-to-peer ridesharing, ride service hailing, food delivery, and a micro mobility system with electric bikes and scooters.

It started working in Egypt in 2014, currently existing in nine cities. Globally, Uber operates in more than 70 countries.

Among the commitments imposed on Uber, according to the ECA press release, is complying by a cap placed by the latter whenever the company wants to increase prices. The cap is “lower than the increase rate prior to the transaction.”

The surge multiplier is capped at 2.5 per cent, and its occurrence is also capped and cannot surpass a threshold of 30 per cent of annual trips. The ECA has the right to intervene and lower such a threshold.

“In order to ensure low prices, the parties should maintain a driver utilisation rate within a 60 to 80 per cent range. Commitments regarding safety and quality, placed in addition to the existing ride-sharing laws, will ensure that the quality of vehicles is checked more regularly. Commitments relating to innovation will ensure that new safety features will be added to the Egyptian market,” the ECA announced.

Other restrictions include encouraging entry of new competitors by allowing them to access Uber’s mapping and trip data and to port user data from users who use the Uber or Careem applications following obtaining their approval.

“The parties will remove any exclusionary provisions with partners and intermediaries. This will decrease entry barriers and encourage investment by reducing the time new competitors will need to establish sufficient network density. The Careem logo and marketing material will be adjusted to show its relationship with Uber, as to reduce advertising and marketing costs for new entrants and reduce consumer confusion,” the statement added.

According to a Reuters report, an Uber spokesman said, “we welcome the decision by the ECA to approve Uber’s pending acquisition of Careem. Uber and Careem joining forces will deliver exceptional outcomes for riders, drivers, and cities across Egypt,” the spokesman asserted.

Ibrahim, a 34-year-old Careem driver (for the purpose of source protection, Al-Ahram Weekly changed the name of the Careem driver), told the Weekly that “it is normal” for the ECA to adopt these regulations. “No one has the right to monopolise ride-hailing services,” Ibrahim said.

On how he sees allowing competitors to use Uber’s data, the Careem driver said “this is a benefit for us [drivers]. Now, if new companies joined the market, we can then work with more than one company. Opening the market for new companies is in our [drivers] interest,” Ibrahim said.

Ibrahim added that nothing has changed since Uber owned Careem. “Everything remained the same: same system, same bonuses, same administration and same call centre.”

The ECA and Uber had a long way to go before settling this issue. In September last year, the ECA warned Uber and Careem against reaching a merger deal without getting the authority’s permission. The authority then underlined Article 5 in the 2005 law on the protection of competition and the prohibition of monopolistic practices that stipulated that the provisions of the law shall apply to acts committed abroad, should these acts result in the prevention, restriction, or harm of the freedom of competition. It also noted that Article 1 says that economic activities shall be undertaken in a manner that does not prevent, restrict or harm the freedom of competition in accordance with the provisions of the law.

The ECA said it notified both companies about its concerns, warning that it has the authority to stop the merger agreement.

Uber said it would pay $1.4 billion in cash and $1.7 billion in convertible notes to completely own Careem.

The two companies said that Mudassir Sheikha, Magnus Olsson and Abdulla Elyas — Careem’s co-founders — will not leave Careem.

*A version of this article appears in print in the 9 January, 2020 edition of Al-Ahram Weekly

 

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