Warren Buffett had expressed interest of investing $3 billion in Uber Technologies Inc but talks flopped after the parties failed to agree on the terms plus the magnitude of the deal. This was revealed by sources close to the matter. Talks are said to have started earlier this year.
Terms of the deal
In the deal, Buffett, through Berkshire Hathaway would have offered a convertible loan to Uber. The loan would have offered protection to the investment in the event that Uber gets into financial turmoil. This transaction is similar to the one that Buffett made with Goldman Sachs Group, when the later was on its financial knees. At the time, Buffett lent $5 billion to the bank when it was struggling to stand after the collapse of Lehman Brothers Holdings Inc. In return for the loan, Berkshire Hathaway got preferred stock which later earned Buffett over $1.6 billion in profits.
Sources have indicated that Buffett had proposed similar terms in the Uber deal. Buffett was offering to lend his reputation plus some capital in return for cushy deal terms.
According to the source, Dara Khosrowshahi, the Chief Executive Officer of Uber proposed the size of the deal be reduced to $2 billion. Dara hoped to get the support of Buffett in exchange for an equivalent share in the company. However, the parties failed to agree on the terms and the deal flopped.
In an interview with CNBC, Buffett confirmed that indeed the talks had kicked off. “I’m a great admirer of Dara. Some of the reported details are not correct but it’s true that Berkshire had discussions with Uber,” Buffett said the news channel.
Buffett’s offer came just a few months after SoftBank, a Japanese investment bank secured a stake in Uber. This is according to a Bloomberg report which cited anonymous sources.
Uber seems to be in a much strong financial position. The ride-sharing company closed the first quarter with $6.3 billion in cash. This is in addition to the $1.5 billion term loan which it intends to report in the second quarter of 2018. But going by the discussions with Berkshire, the company seems to be very hungry for more capital. The talks with Berkshire Hathaway kicked off as Uber was in the process of securing its term loan. Uber was willing to take Buffett’s offer plus the loan at the same time.