With Uber’s I.P.O., Dara Khosrowshahi Is Taking Travis Kalanick’s Company Public – The New York Times

Dara Khosrowshahi had a problem. His name was Travis Kalanick.

That, of course, was nothing new. When Mr. Khosrowshahi took over as chief executive of Uber in 2017, he became the best-compensated janitor in Silicon Valley, with a mandate to clean up the mess left by the company’s exiled founder. But this time, in mid-April, Mr. Khosrowshahi faced a Travis headache that lay in the future.

Uber was just weeks away from its initial public offering. After years of scandal, infighting and user revolt, this was supposed to be a $91 billion moment of triumph, when employees would become wealthy and the public could buy a piece of an indisputably world-changing company. The problem for Mr. Khosrowshahi, according to two people briefed on the matter, was that Mr. Kalanick wanted to be there.

As a former C.E.O. and current board member, Mr. Kalanick had asked to take part in the hallowed New York Stock Exchange tradition of ringing the opening bell on May 10, the day Uber shares are slated to begin trading. He also wanted to bring his father, Donald Kalanick. It would be close to the second anniversary of the accidental death of Travis Kalanick’s mother, and of the dramatic boardroom coup that ousted him as boss. His presence on the exchange’s iconic balcony could make both Mr. Kalanick and the corporation appear resilient.

Mr. Khosrowshahi wasn’t having it. The original plan was to fill the rafters with Uber’s earliest employees and longest tenured drivers. Moreover, some people at the top of the company felt that Mr. Kalanick was still a toxic liability, and that Uber should keep him at maximum distance as it tried to convince constituents that employees truly abided by a new motto: “Do the right thing. Period.” Mr. Kalanick’s appearance would unavoidably rekindle public memories of just how much of a disaster his final year was.

Besides, Mr. Khosrowshahi had bigger things to worry about than I.P.O. pageantry. Uber is losing billions of dollars annually, and he needs to convince investors that it is a promising, long-term company — even if it won’t be turning a profit anytime soon. He didn’t need the distraction at Uber’s financial coming-out party. On May 3, shortly after this article was first published online, Mr. Khosrowshahi decided Mr. Kalanick wasn’t welcome on the balcony, according to an Uber executive briefed on the plans.

The C.E.O. wants to prove that the start-up has evolved past Mr. Kalanick’s raucous, tech-bro culture — and his strategy of setting barrels of money aflame in the pursuit of growth above all else. But Uber’s past, to state the obvious about a company that is only a decade old, is simply not that far gone. Almost every instance of Mr. Kalanick’s bare-knuckled approach to capitalism illuminates something about Uber’s viability as a business today. (Citing the quiet period before an I.P.O., representatives for Uber, Mr. Khosrowshahi and Mr. Kalanick all declined to comment.)

The company has little good will with consumers or regulators in multiple jurisdictions. And Uber still loses money on nearly every fare, using venture capital to subsidize rides, invest in new areas and beat back a set of global competitors that offer an essentially identical service.

Mr. Kalanick’s heavy reliance on venture funding could be problematic for a public Uber in at least two ways. Arguably, it instilled habits of indiscipline, because executives could simply ask for more money whenever they wanted it, like rich kids with no cap on their allowance.

Dara Khosrowshahi, Uber’s chief executive, must convince investors that the money-burning start-up is a viable long-term business.CreditAnastasiia Sapon for The New York Times

Second, and more troubling for retail investors, the bulk of investment returns might have already been realized. Uber acknowledged in a recent filing that its growth is slowing, fueling concern that venture firms, private equity shops, sovereign-wealth funds and other elite insiders have not left much upside for mom-and-pop investors.

The last big beneficiary of Uber’s private-market gains might have been SoftBank. The Japanese mega-conglomerate bought existing shares from Uber investors at a nadir, when the company was valued at roughly $42 billion. Just months later, as Uber recovered from its string of scandals, those shares had nearly doubled in value.

All I.P.O.s are by nature unpredictable, but with Uber the possible outcomes seem especially extreme. Is it a juggernaut that, like Amazon before it, will someday flip the switch to profitability? Or is it something more like eBay, a well-known but puttering giant with its best growth long since behind it?

For now, Mr. Khosrowshahi’s job is to execute a drama-free public offering. He was able to use the chaotic events of Mr. Kalanick’s departure and his own hiring to secure a lucrative incentive. If he is able to attain a valuation of more than $120 billion for Uber over a period of 90 consecutive days, according to two people familiar with the matter and language included in Uber’s I.P.O. prospectus, Mr. Khosrowshahi will personally net stock bonuses of more than $100 million.

Going public comes with additional scrutiny and financial reporting requirements — something Uber may have a tough time adjusting to. In the beginning, investors poured billions into the company while asking for little in return, trusting that the charismatic Mr. Kalanick knew what he was doing.

When the start-up was founded in 2009, venture capitalists were looking everywhere to fund the next Larry Page of Google or Mark Zuckerberg of Facebook — the newest brilliant mind who might put a multibillion-dollar dent in the universe. Investors valued an entrepreneur’s zeal almost as much as the business plan he or she was selling. And nobody was more zealous than Mr. Kalanick.

In his mind, historians would one day mention Uber in the same breath as titans like Apple and Google, world-changing corporations that shaped the way billions of people used technology in their daily lives. Investors liked the idea of disrupting the taxi industry and public transportation, but they liked Mr. Kalanick even more. Despite a little salt and pepper in his hair — born in 1976, he was practically middle-aged for Silicon Valley — Mr. Kalanick was trim and boyish, with an excess of kinetic energy. When he was dangling a chance at Uber equity in front of V.C.s, he was a force of nature, combining the oracular skills of Steve Jobs with the aggression of Alec Baldwin’s salesman character in “Glengarry Glen Ross.”

Typically, start-ups go to venture firms’ offices to make their pitches. At its peak, Uber was in such demand that it flipped the power dynamic, making investors come to its San Francisco headquarters. Mr. Kalanick created a system based on scarcity. For one week, he would hold just three meetings per day with potential backers, forcing them to compete for slots. (He called the method the “homeshow,” in contrast with the traveling “roadshow” that pre-I.P.O. companies conduct.)

Venture capitalists didn’t care that Uber was awash in red ink, as long as the user numbers kept climbing. By the end of 2016, Uber was valued at nearly $70 billion. But abruptly, by the middle of 2017, investors started to worry in earnest that their stakes were in jeopardy of shrinking to zero. A pileup of scandals — from sexual harassment charges to systematically evading law enforcement — all seemed to reflect Mr. Kalanick’s personality and disregard for outsiders, and they cast his business choices in a new light.


Uber drivers protested the company’s fare cuts in 2016 in Manhattan. Uber still loses money on nearly ever fare, using venture capital to subsidize rides.CreditSpencer Platt/Getty Images

Uber’s billions in losses could be interpreted as savvy investments, keeping competitors at bay in what would evolve into a winner-take-all market. Or they could be the heedless spending of someone who cared more about winning in the moment than building a long-term company.

One way Uber got to a position of dominance in cities was by throwing incentives at drivers and lowering barriers to entry — so low that people who might have been prevented from driving in the official taxi industry could easily work for Uber. That included predators. Over time, the company received such a volume of sexual misconduct allegations that to keep track of them, it had to create its own taxonomy of 21 different kinds of misbehavior and assault. (In the classification document the categories run the gamut from “staring or leering” all the way up to “non-consensual sexual penetration.”)

All of a sudden, Uber’s sense of ubiquity and inevitability seemed to be much less of a sure thing. Over a whirlwind weekend in August 2017, Mr. Khosrowshahi was elected to replace Mr. Kalanick as C.E.O. He was a relative outsider to the Bay Area — Expedia, the company he’d been running, was based in Seattle — and he was not a household name. But he had a good reputation, a warm appearance and, to some, one more big advantage: He wasn’t Travis Kalanick.

In the fall of 2017, not long after Mr. Khosrowshahi started his new job, six of Uber’s board members received calls from Barry Diller, the chairman and senior executive of InterActive Corporation and a longtime mentor of Mr. Khosrowshahi. Mr. Diller was being protective of his protégé, and wanted to know how, exactly, he had secured one of the most formidable C.E.O. positions in all of tech.

Later, Mr. Diller called Mr. Khosrowshahi with his findings: He’d been elected almost accidentally, the result of warring factions on the board vying for two different candidates and finally settling on a third. That ended up being Mr. Khosrowshahi. “I really don’t know how you got this job,” Mr. Diller told Mr. Khosrowshahi, describing the level of chaos and utter dysfunction at the very top of Uber. “No one even voted for you.”

Some 20 months later, many of Uber’s most important stakeholders consider Mr. Khosrowshahi’s appointment a stroke of luck.

After parachuting into a profoundly fractured board, the C.E.O. has managed to make a kind of peace among the company’s directors, a group that includes Mr. Kalanick. Leaks about internal issues have largely stopped flowing to the press. Backbiting among executives has subsided. And Mr. Khosrowshahi has refrained from extravagances like booking Beyoncé to perform at private company functions, as Mr. Kalanick did in 2015, at a cost of $6 million in restricted stock units.

Mr. Khosrowshahi’s admirers say the calm is a result of his long experience with corporate distress. After years of running InterActive Corporation’s mergers, acquisitions and finance divisions, Mr. Khosrowshahi was tapped to lead Expedia as chief executive in 2012 — a time of intense political drama inside the online travel company. Mr. Khosrowshahi stabilized some of the internal tumult, according to Neha Parikh, the president of Hotwire, who worked alongside Mr. Khosrowshahi at the time. “No matter who you are,” she said, “Dara makes you feel heard.”

(From May 2015 until September 2017, Mr. Khosrowshahi was on The New York Times board.)

At Uber, Mr. Khosrowshahi hired a slew of lawyers to plumb and correct years of the company’s legal deficiencies. He also edited Mr. Kalanick’s list of 14 cultural values. Ranging from “Always Be Hustlin’” to “Super Pumped,” they read like Amazon’s leadership principles run through a bro-speak translation engine; now they have been made into a blander set of eight platitudes. (Among them: “We persevere.”) Investors who had billions riding on Uber’s success have been happy to see a constant stream of negative headlines shrink to a trickle.


As C.E.O., Travis Kalanick attracted unfathomable amounts of venture funding. That could be problematic for a publicly traded Uber.CreditElijah Nouvelage/Getty Images

While Mr. Khosrowshahi has seemed to successfully reform many of Uber’s cultural issues, skeptics note that the company’s business fundamentals remain much the same. Uber lost nearly $2 billion in 2018, the first full year under Mr. Khosrowshahi’s leadership. That comes even after a retreat from a number of costly battles with ride-hailing competitors in China, Russia and Southeast Asia.

On Uber’s roadshow to pitch itself to institutional investors (there’s no “homeshow” this time around), Mr. Khosrowshahi has broken with Mr. Kalanick’s worldview that Uber is competing in a winner-take-all market. Ride-sharing will be a “winner-take-most” game, as Mr. Khosrowshahi puts it, according to people familiar with his presentation.

He has also embraced the idea that his company is like Amazon — a logistics giant in the making. His pitch casts Uber’s sustained losses as both an attempt to defend its existing market share from competitors while simultaneously investing in Uber’s future growth.

That story seeks to frame Uber as a technology “platform.” Ride-hailing, the thinking goes, is a mere jumping-off point for other markets, like bikes and scooters, food delivery, long-haul trucking — even flying cars. “Just like Amazon sells third-party goods, we are going to also offer third-party transportation services,” Mr. Khosrowshahi said in an interview last year.

Still, Uber has no clear path to turning a profit in the next few years, and the risks section of its registration statement runs to 48 pages, out of 285 total. Shares of Lyft, its nearest competitor, have fallen some 26 percent since their March debut.

Uber’s bankers seem to have internalized the doubts. After initially targeting an I.P.O. opening range of roughly $48 to $55 per share, Uber reduced expectations to roughly $44 to $50 per share at a valuation of $80 billion to $91 billion — significantly lower than the $90 billion to $100 billion range it originally sought.

Despite all Mr. Khosrowshahi has done to distance Uber from its founder, Mr. Kalanick remains intimately connected to the company he built. He remains on Uber’s board, and Mr. Khosrowshahi has shown no signs of agitating for a shake-up of the group in the months following an I.P.O., as some had expected he would.

Friends of Mr. Kalanick say that he feels unfairly targeted by Uber’s I.P.O. paperwork, and its implicit criticisms of his leadership. And every time Mr. Khosrowshahi uses the word “culture,” Mr. Kalanick considers it a thinly veiled synonym for his reign, according to people familiar with his thinking. They add that Mr. Kalanick hopes that his successor will use the I.P.O. to bury the hatchet between the two men, and mark a new chapter in Uber’s history. Even former enemies on the board, like Matt Cohler of Benchmark, have spoken in favor of Mr. Kalanick’s involvement, according to a report from Axios.

No matter where he stands when Uber shares begin to trade — Mr. Kalanick could watch from the stock exchange floor, or skip the event entirely — he will have the consolation of making on paper several billion dollars. That is 600 times what Mr. Khosrowshahi’s stake will be worth. Not that he’s one to let that bother him.

“He’s like Teflon. You can’t scratch him,” said Avid Larizadeh Duggan, Mr. Khosrowshahi’s cousin and the chief operating officer of Kobalt, a music start-up. “But it’s a positive way, not robotic. That’s why he’s such a good choice for this role, because you have to be — especially from where he started.”

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German business Why so many big German companies are in trouble – The Economist

IT HAS NEVER happened to a chief executive of a company in the DAX index of Germany’s 30 largest listed firms. On April 26th 56% of shareholders in Bayer, a chemicals conglomerate, censured Werner Baumann and his management team. Most German bosses can count on nine in ten shareholders to back them in non-binding confidence votes. In 2015 a rebellion by a minority, of 39%, of Deutsche Bank’s owners, who censured Anshu Jain and Jürgen Fitschen, led both co-chief executives to announce their resignation.

Bayer shareholders have reason to be mutinous. Its share price has plunged by 40% since its takeover last June of Monsanto. It is now worth less than the $63bn it paid for the American seed-and-chemicals giant. Critics accuse Mr Baumann of infecting a healthy firm with underestimated legal risks related to Roundup, Monsanto’s blockbuster weedkiller.

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In August an American court awarded $289m to Dewayne Johnson, a terminally ill cancer patient who had been exposed to Roundup over many years. In March it lost a similar case when a court in California awarded $81m to a cancer victim. It is fending off more than 13,000 lawsuits alleging (despite earlier scientific evidence to the contrary) that Roundup causes tumours. The next verdict is expected later this month. There are murmurs that activist investors, including Elliott, an American hedge fund which owns a stake in the company, want to amputate Bayer’s agriculture business from its healthier drugs one.

Bayer is not the only German blue-chip company that has stumbled after an American misadventure. Volkswagen, Europe’s biggest carmaker, has so far paid $30bn in fines and compensation in America after it was caught fitting “defeat devices” in up to 11m cars worldwide to fool emissions tests. It is now trying to reinvent itself as Europe’s leading maker of electric vehicles. Deutsche Bank’s existential troubles date back to its acquisition in 1999 of Bankers Trust, an American investment bank, which served as the launching pad for its ill-fated foray into international investment banking. Daimler, which makes Mercedes cars, has yet to recover after losing €40bn ($45bn) in its short-lived takeover in 1998 of Chrysler. ThyssenKrupp, a steelmaker, burned through €8bn with two factories in North and South America and is now splitting its historic steelmaking unit, to be merged with the European steelmaking business of Tata, an Indian conglomerate, from its lucrative lifts business.

Optimists point to the rude health of DAX stalwarts like SAP (software), Allianz (insurance), Munich Re (reinsurance), Siemens (engineering) or BASF (chemicals)—solid companies with sound balance-sheets busily preparing for the digital age. Even Volkswagen appears largely to have put “Dieselgate” behind it. Cornelius Baur, the German boss of McKinsey, a consultancy, puts some of German firms’ mishaps to chief executives’ poor communication strategy. Americans talk up sexy topics such as technology when they pitch their company’s achievements. By contrast, Mr Baur observes, Germans tend to pontificate about regulation and taxes.

Perhaps. But even DAX companies that have avoided self-inflicted wounds from unfamiliar American-style corporate aggression face challenges. Most depend on exports. They are affected by the slowdown of the Chinese economy, tariff wars and the uncertainty over Brexit. Last year the operating income of DAX firms fell by 6.5%. Although the index is up since January, in line with other stockmarkets, this year may be no less tough for some of them. Carmakers and energy firms plan to send many workers into early retirement.

Whether Bayer’s boss joins them will depend on how company’s legal troubles in America unfold. The sum awarded to Mr Johnson was subsequently reduced; Bayer is appealing. On April 30th credit-raters at Moody’s said that Bayer could absorb litigation costs of up to €5bn. But they warned that payouts of €20bn or more could push the company’s rating uncomfortably close to junk.

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Watch Fed Chairman Jerome Powell’s news conference live – CNBC

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Federal Reserve Chairman Jerome Powell spoke with news media members Wednesday after the central bank wrapped up its two-day policy meeting.

Earlier in the day, the Fed kept interest rates unchanged, citing a lack of inflation.

Markets were not expecting the Fed to raise rates, but the central bank nonetheless has had to consider myriad issues in recent days, including an economy that continues to hum along, low inflation, and extraordinary political pressure from the White House to loosen monetary policy.

Powell holds news conferences after each of the Federal Open Market Committee’s meetings, a departure from past practice where the sessions only took place quarterly.

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FDA clears Philip Morris’s heat-not-burn iQOS tobacco device – The Washington Post

A man smokes a Philip Morris International Inc. iQOS electronic cigarette in this arranged photograph in Tokyo, Japan. Photographer: Akio Kon/Bloomberg (Akio Kon/Bloomberg)

William Wan

National correspondent covering health, science and news

The Food and Drug Administration cleared Philip Morris International’s iQOS — a heat-not-burn tobacco device designed as an alternative to conventional cigarettes — for sale in the United States.

The product consists of a tube that gently heats up sticks of tobacco instead of burning them, making what’s inhaled less harmful. Philip Morris has made the device a key part of its future growth. The device is already sold in dozens of other countries with varying success, but it has triggered debate among U.S. health experts over whether iQOS would help or hurt overall public health.

The FDA, in announcing the decision, said clearing the sale of the devices was “appropriate” for public health because “the products produce fewer or lower levels of some toxins than combustible cigarettes.” The agency also said it has placed stringent marketing restrictions on the products in an effort to prevent minors from using the device.

Health experts worry the device could attract minors and people who did not previously smoke, or that current smokers may adopt the device without giving up their smoking, exacerbating their health risks from tobacco rather than improving them.

An estimated 14 percent of adults in the U.S., or 34 million adults, still smoke cigarettes. And it remains the country’s leading cause of preventable disease and death, accounting for about 1 in 5 deaths every year. Companies and some experts have pushed forward devices like iQOS as possible alternatives to help bring down those rates. At the same time, the country’s tobacco use rates are at historic lows, and health experts worry new nicotine and tobacco product could harm the downward trend and even reverse it.

On Tuesday, FDA experts pointed out that while iQOS is cleared for sale, it has not been officially “approved” by the FDA. That’s because all tobacco products are potentially harmful and addictive, and people who do not use tobacco products should continue not to, the agency said.

Mitch Zeller, director of the FDA’s Center for Tobacco Products, said the review process took into consideration the risks and benefits to the population as a whole. “This includes how the products may impact youth use of nicotine and tobacco, and the potential for the products to completely move adult smokers away from use of combustible cigarettes,” he said.

The agency has not made a decision yet on a separate applications by the company to market the product by claiming that it is less harmful than other tobacco products or that it would reduce the risk of disease.

Philip Morris CEO André Calantzopoulos called Tuesday’s announcement “an important step,” especially for those who have struggled to quit smoking. “For them iQOS offers a smoke-free alternative to continued smoking,” he said.

Philip Morris is the manufacturer of the device and heat sticks, but Altria will sell and market it in the United States. In a statement, Altria said it intends to introduce iQOS first in Atlanta “to learn as much as possible, as quickly as possible” about how it may perform in the U.S. market.

While the product is a “heat-not-burn” device, it meets the technical definition of a cigarette under the federal Food, Drug and Cosmetic Act. Thus, Philip Morris and Altria will be barred from advertising the device on television and radio. In addition, the FDA said, it is placing restrictions on how the product is marketed on websites and social media platforms.

As smoking in the United States has dropped to all-time lows, Philip Morris has made huge investments into iQOS and other smokeless tobacco products, spending $3 billion to develop them.

By using heat instead of flame, Philip Morris claims, iQOS eliminates 90 to 95 percent of toxic compounds in cigarette smoke.

FDA’s announcement on Tuesday is sure to generate fierce debate in coming months.

“People opposed to it will point out rightly that it’s not safe. People on the other side will point out that it’s less harmful than smoking and could be a good alternative,” said Michael Eriksen, a former CDC official and tobacco expert at Georgia State University. “The lynchpin is whether these devices actually lead to people who stop smoking.”

Studies in other countries have shown mixed results, with some smokers who try alternatives — such as vaping or heated tobacco — adopting it in addition to conventional smoking.

“If people in the U.S. end up using devices like this in addition to smoking, it would have been better for them to have never bought it at all,” Eriksen said.

With iQOS now cleared for U.S. sales, the fierce debate over iQOS will shift to how it is marketed. An advisory FDA panel last year rejected claims by Philip Morris International that iQOS reduces the risk and harm of smoking.

The panel agreed with the company’s claim that its smokeless cigarette reduces smokers’ exposure to harmful toxins but said the company had not proved conclusively that that would result in less harm and disease overall.

How the FDA rules on the marketing could influence how successful the device becomes nationwide. If the FDA approves the company’s marketing application, iQOS would be the first tobacco product to carry the U.S. government’s stamp as a less harmful alternative to cigarettes — a marketing coup for Philip Morris.

“Fewer toxins does not mean safe,” said Erika Sward, national assistant vice president for the American Lung Association. Her association has expressed concerns about the short-term and long-term impact of iQOS on lung health and also questioned “whether it will further discourage current smokers from ending their addiction altogether.” To reduce their risk of disease, she said, smokers should quit all types of tobacco products.

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