This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.nytimes.com/2020/05/12/technology/uber-grubhub-deal.html

The article has changed 21 times. There is an RSS feed of changes available.

Version 0 Version 1
Uber Said to Be in Talks to Acquire Grubhub Uber Said to Be in Talks to Acquire Grubhub
(about 4 hours later)
Uber is in talks to acquire Grubhub, said two people with knowledge of the discussions, aiming to create one giant player in food delivery as more people turn toward those services in the coronavirus pandemic. SAN FRANCISCO — Uber is in talks to acquire Grubhub, said three people with knowledge of the discussions, aiming to create one giant player in food delivery as more people turn toward those services in the coronavirus pandemic.
It was unclear how advanced the discussions were and whether a deal would come together, said the people, who spoke on the condition of anonymity because the talks were confidential. Uber recently approached Grubhub with a potential all-stock takeover bid, said two of the people, who spoke on the condition of anonymity because the details were confidential. In response, Grubhub asked for two Uber shares for each of its shares, two of the people said. That would value Grubhub’s stock at more than $60 a share, pegging a deal at around $6.1 billion, or roughly a 25 percent premium to Grubhub’s closing price on Monday.
Representatives from Uber and Grubhub declined to comment. Bloomberg earlier reported the talks. The talks are still in process and could fall apart, the people said.
The discussions are a sign of how the companies are working to capitalize on people’s shifting behavior. With consumers staying home and many restaurants across the country shut down, more people are turning to food deliveries for meals. The discussions are a sign of how thoroughly the coronavirus has upended everything from the way that people are eating to how businesses must shift to find new growth. While food delivery has been offered for years, usage of the services has surged in the pandemic as consumers stay home and many restaurants across the country remain shut down.
But the discussions are also an attempt by Uber to limit damage to its business and find a new path for growth. The company’s main ride-hailing business has been severely hurt by the coronavirus as most travel has halted. Its Uber Eats division, which brings meal deliveries to people, has been a bright spot. At the same time, companies like Uber are trying to limit damage to their business from the coronavirus — its main ride-hailing business has cratered as people have stopped traveling — and instead double down on services that are growing. The food delivery business has also been highly competitive, with rivals regularly undercutting one another on delivery prices, so a deal that would unite two of the players could help reduce those pressures.
Last week, Uber posted a $2.9 billion loss for the first three months of the year and said that even though its revenue was up from a year earlier, its ride-hailing business had all but collapsed in March. It also announced it was laying off 14 percent of its work force. A combined Uber Eats, the ride service’s meal delivery unit, and Grubhub would have about 55 percent of the food delivery market in the United States, according to Wedbush Securities. DoorDash, which has filed to go public and has approximately 35 percent, the firm estimated, would be its largest U.S. rival.
“In the food category, you were seeing a bunch of consolidation,” Dara Khosrowshahi, Uber’s chief executive, said in a call with investors last week. “There is a bunch of consolidation happening on a global basis where bigger players cannot only provide better service for restaurants and consumers, but can provide a better service kind of on an economic basis that is sustainable.” “We’ve long believed that consolidation in online food delivery is inevitable, as too many companies with identical business models are depressing industry profitability via a cutthroat battle for market share expansion,” said Tom White, an analyst for D.A. Davidson.
But he added that if a deal were to happen, it would receive even closer regulatory scrutiny than usual, “given the impact any deal could have on a restaurant industry that is struggling to survive in the face of the pandemic.”
After Bloomberg reported the talks between Grubhub and Uber, Grubhub’s shares soared more than 37 percent, while Uber’s rose more than 6 percent.
In a statement, Uber said it was always looking to provide value to customers and addressed the sudden share price rises. “We have shown ourselves to be disciplined with capital and we do not respond to speculative M&A premiums,” it said.
Grubhub said in a statement: “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.” It added that it was confident in its strategy.
Uber’s talks with Grubhub are taking place as deal-making, a business largely built on boardroom confidence, has slowed during the pandemic. About $831.7 billion in takeovers had been announced through May 7, according to Refinitiv, down 39 percent from the same time last year.
Mergers advisers said that many clients have hit pause on deal talks — except for transactions that make financial and strategic sense, including those done by embattled companies whose fortunes may improve by eliminating competition.
Uber approached Grubhub after the pandemic hit, said one person with knowledge of the deal talks. By then, Uber’s main ride-hailing business had been severely hurt as most travel was halted. Last week, the company posted a $2.9 billion loss for the first three months of the year and said that even though its revenue was up from a year earlier, its ride-hailing business had all but collapsed in March. It also announced it was laying off 14 percent of its work force.
But its Uber Eats division, has been a bright spot. Revenue for the business rose 53 percent in the first quarter from a year ago.
Beyond the United States, a deal with Grubhub could help Uber compete against much larger players abroad. Uber Eats has a smaller foothold in Europe than some rivals, for example. So if price wars over delivery level out in the United States, Uber could focus on spending more to gain more international market share, two of the people said.
Dara Khosrowshahi, Uber’s chief executive, has told investors that he will exit markets where Uber Eats was not the biggest or second-biggest service. Last week, he shut down Uber’s food delivery business in Egypt and Uruguay, where it was not dominant. He has also recently expanded Uber’s delivery offerings by dabbling in package and prescription medication delivery.
In a call with investors last week, Mr. Khosrowshahi spoke about the virtues of getting bigger in food delivery. “There is a bunch of consolidation happening on a global basis where bigger players cannot only provide better service for restaurants and consumers, but can provide a better service kind of on an economic basis that is sustainable,” he said.
Grubhub, founded in 2004, pioneered a model of collecting the menus and information for tens of thousands of restaurants and making them available to diners through its website and apps. It generates revenue by taking a cut of each meal order. But while Grubhub took customers’ orders, restaurants provided their own delivery drivers to fulfill those orders.
That model changed in recent years with the rise of Uber Eats and DoorDash, which provided their own couriers to restaurants. Grubhub, which went public in 2014, has since had to spend more to compete with those new rivals. While it was once consistently profitable, it reported a loss of $33.4 million in its most recent quarter.
Demand for Grubhub’s services has increased during the coronavirus outbreak, the company said in an earnings report last week. The average amount spent per order rose to $40 from $32 a year earlier.
But analysts said Grubhub was forced to pour most of what its earns back into the business to fend off competitors.
“Grubhub faces an increasingly uphill battle in the world of logistics giants like Uber and Amazon,” said James Cakmak, an analyst at Clockwise Capital. “An exit like this is a best-case scenario.”
Michael de la Merced and Jason Karaian contributed reporting from London.