Uber Fails in Its Quest to Acquire Grubhub, Shares Drop

·4 min read

Uber Technologies Inc UBER was eyeing the U.S. food-delivery market through a merger with Grubhub GRUB. A potential merger would have given the combined entity a 48% control over the U.S. food-delivery market, reducing the number of dominant players to three from four (Uber Eats, Postmates, DoorDash and Grubhub). In the process, Uber would have gained an edge over its rival DoorDash, which had a 45% market share in the United States as of April 2020, according to Second Measure. Uber’s food delivery division Uber Eats had a 22% market share in the same month.

Talks proceeded between Uber and Grubhub for a deal in May. However, the deal reportedly drew scrutiny from antitrust officials, following which the possibility of a merger has been abandoned, with Grubhub now set to be acquired by Just Eat Takeaway.com, a European food-delivery company. The Grubhub-Just Eat transaction is valued at $7.3 billion, more than what Uber was offering. Following the loss of the Grubhub deal, shares of Uber closed yesterday’s trading session down more than 10%.

According to Bloomberg reports, Uber did not respond favorably to Grubhub’s request for a breakup fee in case the deal fails to get government approval. The parties also did not agree on the price. While Uber was willing to pay Grubhub holders 1.9 of its shares for each Grubhub share, the latter was asking for 2.15 Uber shares instead, per The Wall Street Journal.

Although Uber feels that “[the] food-delivery industry will need consolidation in order to reach its full potential for consumers and restaurants,” it is not ready for “any deal, at any price, with any player."

Both Uber and Grubhub carry a Zacks Rank #3 (Hold).

Californian Regulatory Ruling Deals Another Blow to Uber

The California Public Utilities Commission ruled recently that drivers of ride-sharing companies need to be considered as employees. This is a major setback to ride-hailing companies like Uber and Lyft LYFT that hire drivers as temporary workers. Both these companies have been firm in their stance that their drivers are not eligible to be classified as full-time employees. In a statement, Uber stated that the company is “committed to expanded benefits and protections to drivers,” however, “if California regulators force rideshare companies to change their business model, it would affect our ability to provide reliable and affordable services.”

Classifying drivers as full-time employees would inevitably raise labor costs for Uber and Lyft. Moreover, the companies have said that the law would reduce the number of drivers and deter flexibility to set their hours.

With the ruling, Uber and Lyft have a deadline of Jul 1 to provide California with employee compensation and classification data. In case the companies fail to comply with the deadline, the Californian regulatory commission may cancel their authorization to operate in the state.

Lyft carries a Zacks Rank #3.

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The company has a stellar earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters with an average beat of 30.7%.

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