(Bloomberg) -- Half a decade ago, Travis Kalanick invited John Zimmer, a founder of Lyft Inc., to his apartment in San Francisco. Kalanick, the then chief executive officer of Uber Technologies Inc., said he wanted to buy Lyft. He told Zimmer and a Lyft investor that the combined business would be more valuable than either company on its own.
Lyft’s asking price at the time would have amounted to less than $3 billion in equity, but the executives couldn’t come to an agreement. It wasn’t the only time Uber could have made a deal with the most fervent competitor on its home turf. But now that Lyft is set to hold an initial public offering on Thursday that would place a value of at least $24 billion on the business, some Uber insiders are taking a moment to privately reflect on their missed opportunities.
Years after Uber’s co-founder dismissed the smaller ride-hailing company, Wall Street is captivated. A road show to promote the IPO drew standing-room-only crowds, and one analyst gave the stock a buy rating before anyone could even purchase it. Lyft increased the price range on Wednesday to as much as $72 a share. On Thursday, Lyft will finally get to call itself No. 1. The IPO is almost certain to be the biggest in two years—at least until Uber goes public in the coming months.
Uber, meanwhile, has been taking steps to avoid price wars elsewhere in the world. In the last few years, it sold operations in China, Russia and Southeast Asia, in exchange for cash and stakes in the local victors. The negotiated ceasefires are simple economics: Less competition usually means higher prices for customers and a profit for the company. Just this week, Uber said it would buy Careem, its main competition in the Middle East. It will spend $3.1 billion to lock down a market that’s both smaller and less lucrative than the U.S.
Silicon Valley is full of what-ifs that could have changed the course of history. Yahoo had multiple opportunities to own Google for as little as $1 million. Facebook Inc. unsuccessfully tried to buy Snapchat for more than $3 billion. Snap Inc. started trading in 2017 at a market value almost 10 times that amount.
Flirtations between Uber and Lyft have been covered in the past, but some of the details of these interactions haven’t been previously reported. Representatives for Lyft, Uber and Kalanick declined to comment.
Lyft’s founders, in meetings with prospective investors over the last two weeks, got an opportunity to step out from Uber’s shadow and tell their own story. Zimmer, the company’s president, talked about his background in the hospitality industry studying the hotel business and in finance at Lehman Brothers. Logan Green, the CEO, told the company’s origin story, which started with a website for college students to organize carpools.
Green and Zimmer are considered pioneers of what we think of as ride-hailing today. In 2012, they signed up people in San Francisco to use their personal cars to pick up passengers placing orders through an app. Uber at the time was working with black-car drivers holding professional licenses, and Kalanick figured city officials would quickly put a stop to what Lyft was doing. He was wrong, and Uber copied the model.
It didn’t take long for Uber to catch up. Kalanick is relentless, and sometimes ruthless, in his approach to business. Kalanick had told private investors that if they bought a stake in Lyft, he’d refuse to sell them Uber stock in the future. Hiroshi Mikitani, the Japanese billionaire and CEO of Rakuten Inc., has said he wasn’t deterred by Kalanick’s missives and became Lyft’s largest shareholder. But Uber overpowered Lyft by just about any measure. It amassed more funding, expanded to more cities, recruited more drivers and lured more customers.
The meeting in 2014 was meant to put an end to a costly tit for tat. Kalanick was open to giving Lyft a stake of 10 percent in the combined company, according to people familiar with the exchange. Lyft countered and asked for 17 percent. Kalanick and a lieutenant who reviewed the offer balked. They believed the price was too high, said the people, who asked not to be identified recounting private negotiations.
Kalanick and his deputy, Emil Michael, figured Uber could instead sell the equity to investors and raise capital to demolish Lyft. Later that year, Uber got more funding at a $17 billion valuation. In retrospect, though, going their separate ways was an expensive decision. Together, the two companies have spent billions competing in one country. Even at an estimated price of $2.9 billion worth of stock, the deal would have been a winner for Uber, many of the company’s insiders now say.
Uber had another potential opportunity in late 2016. Lyft had hired an investment bank, Qatalyst Partners, to explore a sale after fielding interest from General Motors Co. Alphabet Inc., Amazon.com Inc., Apple Inc. and China’s Didi each kicked the tires. Executives from Uber told their investors they wouldn’t pay more than $2 billion, a lowball that Lyft insiders took as an insult. A defiant Zimmer went on CNBC and insisted in an interview with Jim Cramer that Lyft was not for sale.
It took just a few months for things to change. By 2017, Uber’s reputation was imploding. Customers rallied around a #DeleteUber campaign over the company’s perceived ties to the Trump administration. Allegations of sexism and harassment decimated morale. These issues and a flurry of legal pressures ultimately led to Kalanick’s resignation under duress from investors.
This was all good fortune for Lyft. The company said in its IPO filing that it increased U.S. market share to 39 percent, from 22 percent, in the last two years. Revenue doubled to $2.2 billion last year. “The pivotal thing that gave Lyft the ability to emerge as a strong competitor in the space is really the series of unforced errors that Uber made,” said David Hsu, a professor of management at the Wharton School at the University of Pennsylvania. “They positioned themselves as the anti-Uber.”
Lyft’s founders remain at the wheel today. Together, Green and Zimmer will have near majority control of the company when it goes public, thanks to a new class of shares they’re creating. That’s one area where Lyft has drawn a less favorable contrast with Uber, which no longer gives certain shareholders outsize voting rights.
The moment in the spotlight will probably be short-lived for Lyft. Uber plans to file for its IPO next month as it pursues what could be a $120 billion public valuation, people familiar with the preparations have said.
Once both companies publicly trade, investors will have to weigh two businesses that share a lot of similarities. Both let you book rides in SUVs, luxury cars, regular cars or carpools. Both are working on bicycle and scooter rental programs, along with self-driving car projects. Uber, however, is a global business, while Lyft only operates in North America. Uber has growing food delivery and logistics businesses. Lyft doesn’t.
Lyft has tried to differentiate from Uber by fashioning itself as a friend to drivers. It offers a car rental service that drivers say they like. “Each time we expand the fleet, we have more and more demand,” Jon McNeill, Lyft’s chief operating officer, said in an interview last week about new services for drivers. “We operate that at break-even also, so we are being very prudent financially.”
When a car breaks down, Lyft will even offer to repair it in some instances. It plans to open mechanic shops to help drivers keep their costs down. It expects to break even on that initiative, too.
The efforts have bought the company some goodwill, but Lyft is finding it can’t claim exclusivity on being nice to drivers, either. As the founders were making final preparations for a program alongside the IPO that would offer bonuses to drivers in the form of stock, they learned Uber was planning to do the same thing.
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