General Motors (GM 3.73%) recently expressed interest in acquiring the ride-hailing company Lyft outright, according to a new report, going so far as to name a price. But Lyft declined and decided to raise a new round of funding instead.
If the report is accurate, it suggests that GM's aggressive moves to ensure that it remains a major player in the auto industry's ongoing transformation may be even more aggressive than investors have realized.
What the report said
The report (subscription required), which was published late on Friday by the influential technology site The Information, indicates that GM went as far as mentioning a price it was willing to pay. But the publication was unable to learn the amount, and said that it wasn't clear which company initiated the discussions or how far they went. Neither GM nor Lyft had any comment on the report.
What we know about GM's relationship with Lyft
GM already owns a 9% stake in Lyft. GM invested $500 million in Lyft in January, in a funding round that valued Lyft at $5.5 billion. As part of the deal, GM president Dan Ammann joined Lyft's board of directors.
Since the investment, GM and Lyft have begun working together on a series of initiatives. The most visible so far is a program called "Express Drive," which allows new Lyft drivers who don't have a suitable car to rent a GM vehicle at an affordable rate that is partially subsidized by Lyft.
There are more ambitious plans in the works. In May, unnamed Lyft executives told The Wall Street Journal that GM and Lyft will team up to test a fleet of self-driving taxis on public roads in a U.S. city within a year. GM didn't deny the report, and electric Chevrolet Bolts equipped with self-driving hardware have since been spotted openly testing in San Francisco.
The current relationship seems to be working well for both GM and Lyft
For Lyft, the advantages of a relationship with one of the world's largest automakers are obvious, especially given GM's current aggressive focus on future tech. For GM, the relationship with Lyft has been seen as a learning opportunity for the General, a way for GM to increase the visibility of its latest products in urban markets (where it has historically been weak), and a partnership for testing advanced technology like self-driving cars -- and the electric Bolt itself, which was designed with urban ride-hailing service in mind.
But GM is getting all of that now with its 9% stake in Lyft. In GM's second-quarter earnings call last month, CEO Mary Barra said the company's alliance with Lyft "is accomplishing everything we set out for it to do," a view echoed by other executives who have said that GM is very happy with how its relationship with Lyft is working out.
Did Lyft or GM start the conversation?
The Wall Street Journal reported in June that Lyft had retained Qatalyst Partners, a specialist investment bank known for helping technology companies find buyers, and that the bankers were talking to automakers including GM.
At the time, I thought that Lyft was probably exploring the idea of finding a deep-pocketed acquisition partner to help fund its ongoing battle with larger rival Uber for market share in the United States.
That may have been exactly what was happening. It's very possible that GM responded to the bank's inquiries by saying "We'd pay X for Lyft," and that that's the basis of The Information's report.
It's also possible that GM made its offer before then, and that Lyft's response included hiring the bank to explore the market and help it set a price.
If things are fine now, why buy Lyft outright?
GM CFO Chuck Stevens has noted that the $500 million that GM spent on its current Lyft stake is a big investment by GM's standards. GM does have a $20 billion cash reserve, but that's intended to fund product development through a deep recession. It's not an acquisition fund.
It's possible that GM might have offered a deal that didn't require a significant chunk of its cash. GM's deal to buy San Francisco self-driving start-up Cruise Automation had been rumored to be a billion-dollar deal, but actually cost GM a relatively modest $291 million in cash at closing. GM paid the remainder of the purchase price, $290.4 million, in newly issued GM common stock. It's possible that GM offered stock, or a mix of cash and stock, for Lyft as well.
Still, even with stock, it's hard to see GM spending the $5 billion or more that it would take to acquire Lyft (and the billions more it would take to fund and build out money-losing Lyft over the long term) unless the deal was creatively structured.
Or unless GM felt it needed to buy Lyft in order to protect its partnership. Was another automaker interested in buying Lyft? Might that have forced GM's hand?
No matter what, it's an interesting development. We'll see how it plays out.