Uber Wants to Buy GrubHub in Stock Acquisition Deal

Last Updated on June 7, 2020 by Mike Dean

Uber wants to aquire Grubhuh

Uber Technologies Inc. is in advanced talks to buy online food delivery company GrubHub Inc. in an all-stock deal. Since the lockdown, Demand for food delivery has skyrocketed as more consumers look to options that fit with current shelter-in-place orders.

According to people familiar with the matter, the two food delivery services are in talks about a deal and could potentially reach an agreement as soon as this month. Bloomberg reported earlier this week that although the deliberations are still ongoing, the talks could still fall through.

Uber’s main ride-hailing business has been hammered by the global pandemic, but in the US and other developed markets, delivering meals has helped the San Francisco-based company to drive sales as people mostly stay at home. In fact, drivers for Uber and Lyft rideshare platforms have shifted to driving for Uber Eats, DoorDash, Instacart, and Postmates food delivery services to salvage their income.

The service (Uber eats), available in more than 6,000 cities worldwide, has been a drag on Uber’s bottom line since its 2014 inception due to heavy spending on customer promotions and driver incentives. Uber, in January, sold its Indian food business to local rival Zomato, and earlier this month closed Eats operations in eight countries. A merger like this could give Uber Eats’ money-losing restaurant delivery service a leg up on market leader DoorDash at a time when the coronavirus pandemic has upended Uber’s core business of shuttling people from place to place. Uber and Grubhub are still haggling over the deal’s stock exchange ratio, the sources said.

In response to the news, Grubhub released a statement saying the following: “Consolidation could make sense in our industry, and like any responsible company, we are always looking at value-enhancing opportunities. That said, we remain confident in our current strategy and our recent initiatives to support restaurants in this challenging environment.” Uber also issued a statement, remarking that it “wouldn’t respond to speculative M&A premiums” and that it is “constantly looking at ways to provide more value to our customers, across all of the businesses we operate.”

The value of the deal was undisclosed. Grubhub had a market capitalization of about $4.3 billion, while Uber was valued at nearly $55 billion as of Monday’s close, according to Refinitiv data. Uber Eats’ first-quarter revenue escalated more than 50% to $819 million after restaurants across the country shuttered their dining rooms to restrain the spread of the novel coronavirus.

Grubhub shares climbed as much as 37 percent in New York trading after being temporarily halted. They were up 33 percent, valuing the company at $5.7 billion. Uber, with a market value of about $59 billion, rose as much as 8.2 percent.

But food delivery remains largely unprofitable. That dynamic has led to much speculation on potential consolidation in the industry. DoorDash, which is privately held and backed by SoftBank Group, is the most popular in the US, followed by Grubhub and Uber. Any merger between the major apps could draw antitrust scrutiny. Together, Uber and Grubhub could account for 55 percent of the market, according to Wedbush Securities.

As Uber continues to creep into the grocery sector with new programs like Uber Direct, will this potential acquisition give it the leg up over competitors seeking to gain the same market share.