By Cara Lombardo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 13, 2020).
Uber Technologies Inc. is seeking to acquire Grubhub Inc. in a
deal that would unite two of the biggest players in the cutthroat
meal-delivery business at a time when the coronavirus pandemic has
sparked a surge in demand for their services.
Uber, which in addition to its flagship ride business operates a
big meal-delivery unit known as Uber Eats, in February approached
Grubhub with an all-stock takeover offer and the companies have
been in talks since then, people familiar with the matter said.
Grubhub recently proposed that Uber pay 2.15 of its shares for
each Grubhub share, which Uber rebuffed as too high, and now the
two sides are discussing a lower price, some of the people
said.
The talks may not produce a deal.
Should one come to pass, it would reshape the meal-delivery
business, a key pillar of the new economy whose prominence has been
heightened by the pandemic.
Competition in the nascent industry, which ferries takeout
orders from restaurants to homes and businesses, has intensified as
newcomers try to grab market share with discounts and promotions.
At the same time, restaurants are pushing back against the fees
delivery companies charge, squeezing Grubhub and its
competitors.
Analysts have long said that the industry -- with four major
players in the U.S. that also include Postmates Inc. and DoorDash
Inc., all of which lose money -- is in need of consolidation. Some
see room for little more than two major players.
The Wall Street Journal reported in January that Grubhub had
tapped financial advisers to consider a possible sale.
Grubhub's shares closed up more than 29% Tuesday on the news at
$60.39, giving the company a market value of $5.6 billion. Uber's
shares rose 2.4% to $32.40, its market capitalization now at $56.2
billion. Uber stock is still down from its IPO price of $45 last
year as investors blanch at the company's copious losses.
A combination could help both companies stem losses from the
cost-intensive business of building out delivery operations and
luring customers. The pandemic has added urgency as stay-at-home
orders stoke demand and force delivery companies to make additional
investments to keep up.
Meanwhile, travel limitations and business closures have
devastated Uber's core ride-hailing business, elevating the
standing of its meal-delivery unit, which had been struggling to
find its footing in a crowded field.
Grubhub, once the industry's dominant player, had already ceded
market share to upstarts such as DoorDash.
Grubhub in October cut its revenue and profit forecasts amid
slowing customer growth, sending the shares down 43% the following
day and helping prompt the review of strategic alternatives.
The pandemic initially dented Grubhub's results further as
people stocked up on groceries and many in its stronghold, New York
City, left town. It has since said sales are starting to
rebound.
Both Uber and Grubhub pulled their earnings guidance for the
year. Uber earlier this month said it planned to cut 14% of its
workforce and has said the move could help it turn a profit in
2021.
A combined company would control an estimated 55% of the
third-party food-delivery market, with DoorDash number two at
roughly 35%, according to analysts at Wedbush Securities. It would
also have the most expansive footprint, combining Grubhub's
strength in large U.S. markets with Uber's operations around the
globe.
"We are always looking at value-enhancing opportunities,"
Grubhub said in a statement after the Journal and others reported
on the possible deal. "That said, we remain confident in our
current strategy and our recent initiatives to support restaurants
in this challenging environment."
Uber said in a statement it is "constantly looking at ways to
provide more value to our customers, across all of the businesses
we operate" and has shown itself to be disciplined with
capital.
Before the pandemic, Uber Eats was focused on a plan outlined by
parent-company CEO Dara Khosrowshahi to pull out of markets in
which it isn't one of the top players, including in countries such
as Saudi Arabia, Egypt, Honduras and Ukraine.
Eats' gross bookings surged 52% in the first quarter from a year
earlier to $4.68 billion as more people ordered food to their
homes. Grubhub's first-quarter sales were roughly $363 million, up
12% from a year earlier, while its total loss was a
worse-than-expected $33.4 million.
Whatever happens between Uber and Grubhub, the industry is
clearly in flux. DoorDash and Postmates are each eyeing
stock-market listings, possibly this year, and have explored
merging with companies that are already public as an
alternative.
Write to Cara Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
May 13, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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