SAN FRANCISCO — Uber plans to buy Careem, its largest rival in the Middle East, the American ride-hailing company announced on Tuesday, giving it a strong foothold in the region ahead of its expected public offering.
The deal, valued at $3.1 billion, will need regulatory approval and may not be completed until next year.
Uber’s public offering, expected next month, could reach a valuation of up to $120 billion, rivaling the 2012 listing of Alibaba, the Chinese e-commerce giant. But Uber has remained unprofitable, burning cash on subsidies for its riders and drivers in an effort to undercut its competition. In the final quarter of 2018, the company lost $865 million on revenue of $3 billion.
By taking over its main competition in the Middle East, Uber could cut its losses there. The deal with Careem will also give it access to some countries, like Iraq, Palestine and Morocco, where it does not operate.
Uber will pay $1.4 billion in cash and $1.7 billion in convertible notes. Careem will continue to operate under its own brand and remain somewhat independent of Uber. Both companies will continue to offer rides, but may test certain features on one platform before introducing them on the other.
The deal is a break from Uber’s approach in some other regions. Uber has sold majority stakes of its businesses in Russia, China and Southeast Asia to local competitors after deciding to avoid price wars in those areas. Those deals briefly put Uber in the black for the first time in the company’s history.
“With a proven ability to develop innovative local solutions, Careem has played a key role in shaping the future of urban mobility across the Middle East, becoming one of the most successful start-ups in the region,” Dara Khosrowshahi, Uber’s chief executive, said in a statement.
Careem was founded in 2012 as a corporate car service but eventually adopted a ride-hailing model similar to Uber’s. The company is based in Dubai and operates in 15 countries, including Egypt and Saudi Arabia. It recently expanded into food delivery and payments, seeking to establish itself as a one-stop shop for consumers. Private investors valued the company at about $2 billion last year.
But Uber’s deal could raise privacy concerns. As the company planned its expansion in Egypt in 2017, government officials there asked it to provide real-time access to users’ location data. Uber declined, arguing that it had never provided real-time access to governments, but Careem was more open to cooperating with the government.
In 2018, hackers stole personal data for 14 million users from Careem. To address these concerns, Careem’s security and legal teams will report directly to Uber, according to a person familiar with the deal. The person would speak only on the condition of anonymity ahead of Uber’s public offering.
Mr. Khosrowshahi said in an email to employees that both Uber and Careem would benefit from operating independently.
“This framework has the advantage of letting us build new products and try new ideas across not one but two strong brands, with strong operators within each,” Mr. Khosrowshahi wrote. Over time, Uber and Careem will integrate some elements of the other’s products, he added.
Careem will be guided by its own board, with two members from Careem and three from Uber.
“The mobility and broader internet opportunity in the region is massive and untapped, and has the potential to leapfrog our region into the digital future,” Mudassir Sheikha, Careem’s co-founder and chief executive, said in a statement.