GS Goldman Sachs Group Inc

By Liz Hoffman 

Wealthy clients of Goldman Sachs Group Inc. will emerge with deeply discounted stakes in Uber Technologies Inc. when it goes public this week, placing them among the biggest winners in a deal full of them.

In 2015, Uber raised $1.6 billion from Goldman's private-wealth clients by selling them debt that would convert into stock at a discount to the eventual IPO price. The discount grew the longer Uber stayed private and now stands at 40%, including accrued interest, according to investor documents and people familiar with the matter.

That will translate into a 3.4% stake in Uber, worth $2.7 billion at the middle of the expected IPO price range -- a $1 billion paper profit in 4 1/2 years.

Uber will mint plenty of millionaires when it debuts on Friday. Employees, early Silicon Valley backers and mega-investor SoftBank are all poised for big gains on their stakes in the money-losing company. Goldman itself has a small stake that will be worth about $500 million at the IPO, courtesy of its investment bankers' unusual side hustle as venture capitalists.

That investment is distinct from the convertible bonds, which Goldman bought on behalf of private-bank clients. Goldman's partners have tens of millions of dollars invested alongside them. The fund's name, DRT Investors, is rumored internally to stand for "Don't Ride Taxis," a plug for Uber's business model.

Goldman earned a $65 million fee for placing the bonds, which were marketed as a sort of apology to clients following a canceled offering of private Facebook Inc. shares in 2012, according to people familiar with the matter. In that deal, Goldman's overseas clients and partners got pre-IPO shares of the social network but in the U.S. were cut out.

The Uber bonds initially earned interest of 2.5%, rising to 12.5% this year and giving their holders extra rights if the company dragged its heels on an IPO past next year, according to investor documents.

Goldman can't sell its Uber shares for six months and the individual investors are barred from entering into hedges or any other transactions to lock in their gains in the meantime, according to people familiar with the terms.

A hedge between two large investors in rival ride-sharing app Lyft Inc. is thought to have contributed to Lyft's share-price slide following its March debut. Uber re-examined its own agreements with investors as it prepared to go public, The Wall Street Journal has reported.

Goldman's multiple roles could put the bank in a tricky spot, especially if demand for the shares is soft or early trading is bumpy.

Along with lead underwriter Morgan Stanley, it is responsible for helping to set the price at which Uber shares will list, balancing the company's need to raise cash with a desire to have the shares trade up. (Morgan Stanley also manages a client fund that owns Uber shares.)

The gains will come at a good time for Goldman, which is looking to raise more client money for alternative investing funds across real estate, private equity and credit.

Write to Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

May 08, 2019 12:57 ET (16:57 GMT)

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