■ Development likely to have implications on ComfortDelGro/ Lion City Holdings deal
■ Various possibilities but base case: competition returns to normalcy, CD to benefit
■ CCS views, regulations an important factor to monitor
According to media reports, Uber is said to be reaching or has reached an agreement to sell its South-East Asia operations to Grab, which is to be announced as early as today. It has been reported that Uber will then own up to a 30% stake in Grab.
This news does not come as a surprise and, if it materialises, puts an end to months of speculation that it was in the process of exiting the SEA markets.
With respect to ComfortDelGro (CD), recall that it currently has a pending deal with Uber to acquire a 51% stake in the latter’s subsidiary, Lion City Holdings (LCH).
(ComfortDelGro: Buying into private-hire vehicles through Lion City) LCH is a rental car business with operations based in Singapore, and is said to own/ operate a fleet of c.14,000 vehicles. At this juncture, the deal is under the Phase 2 review of the Competition Commission of Singapore (CCS).
Our initial views:
There are a number of scenarios and potential outcomes –
Base case: competition cedes, bodes well for CD. There are multiple scenarios and various fluid factors at play here, given multiple parties and potential regulations. We present our initial thoughts, which is subject to changes. Our base case scenario is that with the exit of Uber, and competition cedes, we could see market normalcy returning with the absence of heavy discounting and promotion. This would bode well for CD.
However, we are in early days, still bears monitoring pending developments. We present the various scenarios and our take. In our view, the outcome of Uber/Grab deal is likely to have an impact on the CD/LCH acquisition. While we present the scenario that CD/LCH deal will proceed, we think the chances are low given the potential combination of Grab/Uber and this could raise anti-competition concerns. In fact, in our earlier note on 20 Feb 2018 (ComfortDelGro: CD-Lion City Rental acquisition moves into Phase 2 of CCS review) commenting on CCS’ Phase 2 review of CD/LCH deal, we believe a concern was the overarching news of the change in shareholding in LCH.
Source : DBS Group Research