General Motors Co. bought out the SoftBank Vision Fund 1’s stake in self-driving startup Cruise LLC for $2.1 billion, ending the Japanese investment firm’s involvement in the business and giving the Detroit automaker 80% ownership.
GM also said Friday it will invest another $1.35 billion in Cruise, which makes up for the amount that SoftBank had pledged to invest in the startup once the company deploys vehicles in a ride-sharing business, something it is preparing to do.
The deal consolidates GM’s ownership and control over Cruise, and reverses a capital diversification play by former Chief Executive Officer Dan Ammann, who was fired in December after pushing for an initial public offering. GM CEO Mary Barra and Cruise founder Kyle Vogt, who replaced Ammann as CEO, have said an IPO isn’t in the offing at this time and likely won’t be anytime soon.
“Why not just go public? It’s a major distraction, especially right now,” Vogt said on Twitter after GM announced the deal. “Cruise just launched a driverless ride hail service in SF, and we want 100% of our energy focused on scaling up and delighting our customers.”
For SoftBank, the sale marks a nice return on a nearly four-year investment. The fund initially committed $2.25 billion for an 11% stake in Cruise in May 2018. The first $900 million was to come at once, with $1.35 billion payable once vehicles were ready for commercialization. SoftBank contributed about $300 million in additional funding subsequently.
When Cruise started offering free rides to the public without a safety driver in late January, it triggered SoftBank’s second investment requirement, GM said on its fourth-quarter earnings call. SoftBank didn’t make the investment and GM bought out its stake.
Departed banker
The managing partner at the Vision Fund who championed the investment and several other transportation bets, former Goldman Sachs banker Michael Ronen, left two years ago. Since then many of his portfolio companies have lacked a clear advocate at the firm.
The investment fund has seen the value of its technology investments plunge by $25 billion and the company is heavily in debt. But the Vision Fund sold its Cruise stake for more than double its initial investment. A SoftBank spokesman declined to comment.
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SoftBank Group, like many investors, is suffering from falling values in public stocks and late-stage private companies. The company has borrowed against some of its investments to make more bets on startups, creating headaches at the firm as its loan-to-value ratio rises and the fortune of SoftBank founder Masayoshi Son sinks. The Cruise sale will help restore some balance.
Consolidating control
GM Cruise has other outside partners who still own a combined 20%. They include Honda Motor Co., which is helping GM develop the Cruise Origin autonomous vehicle, Microsoft Corp., Walmart Inc. and T. Rowe Price Group Inc.
In lieu of an IPO, GM also set up a plan to allow Cruise employees to cash out of their stakes in the company as an alternative to waiting for an IPO. The automaker launched what it calls a Recurring Liquidity Opportunity Program, which will pay existing employees for unlisted shares they want to sell at various times throughout the year.
“Public co’s typically have the upper hand vs. private co’s when making offers to candidates, since the equity part of an offer is liquid,” Vogt said on Twitter. “But being a public co can be a pain. So today we introduced Cruise’s RLO, our solution.”
GM said in its filing the total equity awards held by employees are worth $4 billion and that it expects to set aside $1 billion to $1.5 billion this year for the employee fund.
Ammann had been arguing internally that Cruise needed a public stock offering to lure and retain talent. Barra, however, wants to keep Cruise in house — at least until it reaches further milestones with its self-driving technology and develops a business that brings in revenue, people familiar with the matter said in December.
GM was little changed in extended trading. The shares gained 2.7% to $44.82 at the close Friday in New York.
