Uber Interested in Grubhub, but No Deal Reached Yet
If an agreement is reached, the deal likely will face regulatory and antitrust barriers.
As the coronavirus pandemic has spurred demand for online food delivery, Uber’s appetite for acquiring food delivery peers appears to have increased. As published by the Wall Street Journal on May 12, Uber (UBER) has been in talks to acquire Grubhub in an all-stock deal at a price of 2.15 Uber shares for each Grubhub share, which possibly values Grubhub at $68 per share (based on Uber’s May 11 closing price), 42% above our $48 Grubhub fair value estimate. Obviously, if such a deal were to take place, Grubhub’s current shareholders would be the main beneficiaries as the stock spiked 29% to $60.39 on the report. For Uber, such a deal would imply around $1.9 billion in synergies, which may benefit Uber in the long run but not necessarily right away. Whether such talks are taking place remains uncertain, but even if an agreement is reached, the deal likely will face regulatory and antitrust barriers.
In our view, the addition of Grubhub (which would increase Uber’s U.S. market share to around 48%, based on data from Second Measure) could strengthen the supply and demand sides of Uber’s network effect moat source, which may create synergies with lower restaurant, driver, and diner acquisition costs. On the supply side, the firm would be better able to attract and retain restaurants. With more food delivery requests, Uber is likely to also maintain more of its ride hailing drivers and increase utilization of each. On the demand side, Grubhub will add to Uber’s diners, which will further attract restaurants and drivers. Plus, we think over time, this may not only reduce diner acquisition costs for Uber but will also allow Uber to more effectively cross-sell its two main businesses to a larger user base.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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