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Uber Approaches Grubhub With Takeover Offer

Ed Hammond

(Bloomberg) -- Uber Technologies Inc. has made an offer to acquire Grubhub Inc., a move that could combine two of the largest food-delivery apps in the U.S. as the coronavirus drives a surge in demand, according to people familiar with the matter.

The companies are in talks about a deal and could reach an agreement as soon as this month, said the people, who asked not to be identified because the matter isn’t public. Deliberations are ongoing, and talks could still fall through, the people said.

Grubhub said in a statement: “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.” Uber said it wouldn’t “respond to speculative M&A premiums” and that the company is “constantly looking at ways to provide more value to our customers, across all of the businesses we operate.”

Shares of Grubhub climbed as much as 39% in New York trading after being temporarily halted. They were up 29% at the close of trading in New York, valuing the company at $5.6 billion. Uber, with a market value of $56 billion, rose 2.3% Tuesday.

Grubhub, founded in 2004, is the oldest of the major food delivery companies in the U.S. In recent years, competition from DoorDash Inc. and Uber has squeezed Grubhub’s profit margins. The coronavirus is adding more pressure, forcing Grubhub to withdraw its 2020 financial guidance last month. Uber pulled its forecast, too, and said a plan to turn a quarterly adjusted profit this year would be delayed until 2021.

As part of a series of cost-cutting movies, Uber is shuttering food-delivery operations in seven countries where the service has proved to be unpopular, it said last week. Those markets represented 1% of Uber Eats gross bookings and 4% of the business’s adjusted loss before interest, taxes and other expenses for the first quarter of 2020, the company said. Uber’s ride-hailing business has been hammered by the global pandemic, but in the U.S. and other developed markets, delivering meals has helped the San Francisco-based company drive sales as people mostly stay at home.

But food delivery remains largely unprofitable. That dynamic has led to much speculation on potential consolidation in the industry. DoorDash, which is privately held and backed by SoftBank Group Corp., is the most popular in the U.S., followed by Grubhub and Uber. Any merger between the major apps could draw antitrust scrutiny. Together, Uber and Grubhub could account for 55% of the market, according to Wedbush Securities.

A deal “would help consolidate the U.S. online food delivery market and reduce cash burn,” Bloomberg Intelligence senior industry analyst Mandeep Singh wrote in a note Tuesday.

(Updates with Wedbush note in the penultimate paragraph.)

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