cornershop’s struggle with uber acquisition: chile approves the union, only mexico’s verdict to go
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Contxto – US mobility giant, Uber, is trying to purchase a majority stake in Chilean-Mexican last-mile delivery scaleup, Cornershop. This much is clear.
With the twists, turns, and, especially, rumors surrounding this saga, it’s best to stick to the officially confirmed facts. This means that as information slowly emerges, we will update this space:
June 1, 2020
There was mild relief when Mexican courts moved the approval of Uber’s acquisition of a majority share in Cornershop along. Now, the transaction between the US-mobility giant and the Chilean-Mexican last-mile delivery scaleup seems to be on a roll of good news.
Today we got word that the Chilean government’s regulating body on antitrust and free competition, FNE for its Spanish acronym, had approved the union between the two companies.
Although Chile is renowned for its business-friendly ways, the FNE’s blessing was far from settled. Indeed, in February, there seemed to be bad news from unexpected places on the horizon as the Chilean regulator postponed the deadline for its ongoing investigation into the acquisition.
- Related article: Government in Chile delays Uber’s acquisition of Cornershop
Motors are now revving to complete Uber’s buyout of 51 percent of Cornershop’s stock.
Let the good times roll?
The verdict at the FNE stated that:
The transaction does not substantially reduce competition, and thus, cannot negatively affect either the terms of access, pricing, quantity, or quality of other last-mile delivery companies… in Chile
Good news all around it would seem. But at what cost?
Time is of the essence in this transaction as Cornershop hemorrhages money. It only has enough cash to survive until December of this year.
Meaning, by that time they will have needed Mexican regulator, Cofece, to have given the correct approval. Mid-May’s news on the subject gives the scaleup hope, as you can read below, but I would still not hold my breath.
It seems that this will be nail-bitter: The acquisition is not over ‘til after the last-mile has been run.
May 22, 2020
The court has spoken! The Collegiate Tribunal in charge of deciding if Mexico’s Federal Commission for Economic Competition (Cofece) had the right to decide whether the Uber-Cornershop union broke with anti-trust rules.
Or, whether the deal was just internet-y enough for it to fall under the purview of the Federal Telecommunications agency (IFT). The IFT certainly thought so, challenging Cofece in court and throwing a spanner in the works since last year.
Well, the verdict is in and the judges have ruled overwhelmingly in favor of Cofece.
The conclusion was simple: Uber and Cornershop sure use the internet, but simply as a means to another economic end. Neither is, therefore, considered to be a telecom company in the eyes of, well, everyone except for the IFT. Indeed, it didn’t get a single vote from the judges.
So, therefore, now we know it. In the eyes of the Mexican regulatory framework, Uber and Cornershop are now officially to be considered “logistics and user, driver, and courier intermediary” companies.
Well, that’s good news. And not only for the Cornershop-Uber deal, but also for the whole ecosystem, because it sets an important precedent within Mexican law for any cases involving goods and services sold via an online platform.
But don’t declare victory just yet. Believe it or not, we’re just now returning to square one. The one we were at back in 2019… before Tiger King… before coronavirus… before the IFT stuck its nose into the other regulator’s business.
“But, Cofece will be getting straight back to work, right?”, you’ll be asking. And the answer is… no. Even though they watched the proceedings live, Cofece still needs to get the verdict in writing from the court. Wait, why was it that people hate regulators again?
Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.
Winston S. Churchill
March 23, 2020
The silence has been broken! Oskar Hjertonsson—Co-founder and CEO of the Mexican-Chilean startup—has reached out to the world via his Twitter account to explain what’s been going on with Cornershop—and demand action from the authorities.
And I’m not just talking its acquisition by Uber, but also how it’s handling the Covid-19 pandemic, and how both events have tied in to form a perfect storm.
Chief among the information provided by the CEO was the admission that the company has a limited supply of funds. He gave the scaleup a nine-month deadline for the pertinent regulatory bodies to give their blessing to the startup’s acquisition by Uber. (Read below to learn more.)
It is not looking good, since this means that if the transaction doesn’t go forward by late November of this year, Cornershop will literally run out of cash.
Now, Hjertonsson’s main worry seems to be that the company will “fail upwards”, meaning that their limited resources and regulatory hamstringing will lethally affect their ability to grow with the spike in demand:
“Our nice-to-have service has suddenly become a must-have for many customers.”
Hjertonsson on Twitter
Hjertonsson laid the blame squarely at the regulator’s feet:
“We’re not hiring all the people we should be hiring, and we can’t work with Uber to help us increase capacity at a time when people need grocery delivery more than ever.”
Hjertonsson on Twitter
I hesitate to ask if it could get any worse since this iconic Latin American startup already had it rough before the rise of Covid-19. Now, it is desperate and unable to grow its workforce to meet demand with the money it has at hand, and so is—by the look of things—going as far as to cannibalize parts of itself to keep up:
“We spend a lot of our time deciding which parts of our plan to cut or delay because of the regulatory uncertainty we find ourselves in.”
Hjertonsson on Twitter
Thus it would seem that the fate of this Latin American startup is now inextricably linked with the well-being of the region’s population. People responsibly staying home still need the provisions that this company is providing.
If Cornershop goes under it could well mean putting people’s lives on the line.
March 18, 2020
The hard facts
The deal is still on. After a rather large hiccup last year, when Mexico’s trust-busting body—Cofece—forbid Walmart from purchasing Cornershop on anti-monopoly grounds, the regional scaleup is at it again.
Yet, recent difficulties and fake news, compounded by both parties’ radio silence on the matter, have really obfuscated what is actually going on with this transaction.
I say “slowly” because one of the countless side effects of the Covid-19 pandemic has been a freeze on everything from non-essential government business to information on large-scale strategic moves by companies.
Related article: Uber to purchase majority stake in Cornershop
This time it has looked to Uber. The car-hailing company announced it would pay US$459 million for Cornershop in order to acquire a controlling stake.
By November of last year, Uber had sealed the deal with an injection of US$50 million into Cornershop.
Unfortunately, it has not been smooth sailing this time either. Now, the issue isn’t even about the merger itself, but rather jurisdictional problems between aforementioned Cofece and the Mexican Federal Telecommunications agency—IFT.
These two autonomous governmental agencies are duking it out over who gets to oversee the acquisition.
Why? Because IFT says that the companies’ use of Big Data and the internet puts them in its remit.
The fake news
Now, we’re trying to keep this strictly fact-based. That is what I have not told you about the details of the Cornershop-Uber deal, because officially there are none.
There’s a lot of off the record talk about the specifics of the transaction, including the fact that Cornershop ceased operations during the transaction (categorically false) or that it is about to go bankrupt (also false, but with interesting nuances).
The unnecessary friction
The fact of the matter is that the two government agencies are taking ages to figure out who’s in charge.
In Europe, the average regulatory bodies make a decision within 30 days of receiving a case like this. In Sweden, it takes 12.
Here—really helping Latam with its inept bureaucracy look—, the merger has been on standby since the end of last year and it has now been over a month since Cofece and IFT started bickering over who’s in charge.
This puts Cornershop in a difficult position. Not because it is about to go out of business by hemorrhaging money or for having closed up shop while it waits—a source with inside knowledge about the company tells me this is not even near close to the case.
Rather, the massive delays cause unnecessary friction for future planning.
The Mexican-Chilean startup is still dependent on external funding, and the lack of clarity surrounding the timetable makes it difficult for Cornershop to discern what sort of a funding runway it has. That is what sort of cashflow it should manage since it cannot program fundraising until the Uber deal is resolved.
Luckily—or rather, cleverly—, Cornershop shunned the “growth at all costs”-model that the likes of Rappi are now paying the consequences for following. Its efficient operations mean it has low overheads. The fact that they are still running means they’ve still got cashflow. And, finally, the company’s bond rates are stable.
Cornershop has life ahead of it yet.
Of course, that US$50 million that Uber gave the startup for its war-chest did not have Covid-19 in mind at the time, so I wonder if… Sorry, hard facts only.
Related articles: Tech and startups from Mexico!
-AG
