Uber Makes Move Towards Acquiring GrubHub

Multiple news outlets reported on Tuesday that Uber Technologies (UBER) has made a move towards acquiring GrubHub Inc (GRUB), an online food delivery company.

Final conclusions are yet to be made as the two companies are still discussing the deal. Both companies would likely reach an agreement by the end of May or early June, according to sources at Bloomberg.

There is also a possibility that the deal discussions would end with no agreement. According to reports from the Wall Street Journal, investors would get 2.15 shares of Uber for every GrubHub share they own, on every offer raised by GrubHub.

GrubHub, in a statement, as regards the talks said they “remain squarely focused on delivering shareholder value.” Although Uber is yet to comment on it.

“As we have consistently said, 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.”

As a result of the new deal in progress, shares of GrubHub rose nearly 25% at $58.44, while Uber shares were up 4%.

According to Refinitiv data, as at Monday’s close, Uber was valued at nearly $55 billion, ending its first quarter with about $9 billion in cash or cash equivalents on its balance sheet. While GurbHub’s market capitalization was about $4.3 billion. By Tuesday GrubHub’s market value was nearly $5.7 billion.

Uber has been a benefactor of the coronavirus pandemic. Despite the shutdown of its food delivery business in countries with low patronage, the cab-hailing company has still been able to keep in step with the food delivery business in other markets as a result of many new customers signing up due to the close of eateries.

Since the restriction placed on movements due to the coronavirus pandemic, Uber cab-hailing services have been dramatically impacted. The company has since relied on its food delivery business, Uber Eats to grow its revenue. Uber Eats’ revenue has since risen more than 50% to $819 million on a yearly basis in the first quarter.  

If the deal with GrubHub works out—either purchase or investment, Uber’s plans to be the first or second player in any market it operates. Uber could gain dominance in third-party delivery, says Wedbush analyst Daniel Ives, estimating the combined market share to be 55%, However, he warns that competitors like Doordash could also bid.

In its annual shareholders' meeting on Monday, Uber’s Chief Executive Dara Khosrowshahi told investors that the company has a few acquisitions in consideration.

“We are dialogue with many players… and because of our being Uber, the biggest player in this area, the global player, you can imagine that we’re having lots of conversations with an eye towards continuing to build a great service long-term and maximize shareholder value along with it.”