GRUB GrubHub Inc

By Cara Lombardo 

Uber Technologies Inc. and Grubhub Inc. are discussing a takeover valuing Grubhub at roughly $6 billion, with big cost savings that would help pay for the deal, according to people familiar with the matter.

The companies are considering a deal that would value Grubhub stock at around 1.9 Uber shares, or just over $60 per Grubhub share based on trading Wednesday afternoon, the people said.

Grubhub had been seeking 2.15 Uber shares in the negotiations, The Wall Street Journal reported Tuesday, but Uber balked at paying that much. The potential price has jumped around since the latest discussions began in February and may continue to do so -- assuming the talks continue.

Grubhub shares soared 29% Tuesday, the day the merger talks surfaced, closing at $60.39. They dropped to $58.14 Wednesday amid a broader market selloff. Uber stock closed up 1.9% at $33.02 after The Wall Street Journal reported on details of the discussions.

Uber and Grubhub see opportunity in the rapidly changing industry landscape. Meal-delivery companies have been scrambling to respond to increased demand as the coronavirus pandemic confines people to their homes and increases the cost of delivering food safely.

Encouraging Uber and Grubhub to strike a deal now is the potential for enormous cost savings, likely north of $300 million, the people said. That is an especially large number for a transaction this size.

A big part of that comes from improved logistics. By utilizing Uber's more sophisticated routing platform, Grubhub could potentially save $2 to $3 on each of the orders it delivers itself, which amount to roughly half of its more than 500,000 daily deliveries, some of the people said. A large portion of Grubhub's orders are delivered by restaurants themselves, as almost all of Uber's are delivered by its drivers.

The combined company could also save on marketing expenses.

Savings are also likely to come from slowing hiring or potentially eliminating jobs, the people said. That possibility is certain to stoke concerns among politicians -- including some Democrats who have called for a pause on mergers-and-acquisition activity during the pandemic in an attempt to limit job losses.

Uber -- whose food-delivery business has become a bright spot during the pandemic as ride-hailing demand plummets -- could also benefit from Grubhub's expertise in building out new markets and forging relationships with small- and medium-size restaurants.

The companies' CEOs, Dara Khosrowshahi and Matt Maloney, have known each other for years and are discussing many of the details personally, some of the people said. While the newly appointed head of Uber's meal-delivery business, Pierre-Dimitri Gore-Coty, is expected to retain his position in a combined company, Mr. Maloney would likely be offered an executive role too.

Should there be a deal, it is still likely a few weeks away, some of the people said. The talks had somewhat slowed before Uber's stock jumped on its better-than-expected first-quarter earnings report last week.

Even if there is an agreement, the deal would still have to pass regulatory muster. It would create a dominant player in the food-delivery space for the first time in years.

On Wednesday, Sen. Amy Klobuchar (D., Minn.) said the potential deal "raises serious concerns" about the impact on customers at a time when they need food delivery services the most.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

May 13, 2020 17:31 ET (21:31 GMT)

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