Grubhub and Uber chiefs continue deal talks

Grubhub had previously proposed an exchange ratio of 2.15 Uber shares per Grubhub share, which Uber rejected

Uber Technologies Inc. and Grubhub Inc. continued their merger discussions over the weekend, with the companies' chief executives trying to hash out the price of a deal that would reshape the meal-delivery business.

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A food delivery courier for Grubhub Inc. wears a protective mask in New York. (Jeenah Moon/Bloomberg via Getty Images).

Grubhub Chief Executive Matt Maloney spoke to Uber Chief Dara Khosrowshahi Sunday and indicated that Uber's latest offer of 1.9 of its shares for each Grubhub share is too low, according to people familiar with the matter. Mr. Khosrowshahi said he might be able increase the offer to 1.925 Uber shares, but that is still well below the price Grubhub had been seeking.

There is no guarantee the companies will manage to reach agreement on a price, and once they do there are still other items to be negotiated for a deal that would combine Grubhub with Uber's food-delivery unit, Uber Eats. An agreement -- should there be one -- is still unlikely in the next few days, the people said.

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The gap between what each side is seeking is a sign of challenges they face in cementing a deal that would establish a larger competitor in the cutthroat industry and potentially yield hundreds of millions in cost savings. The companies have estimated cost savings would top $300 million, but Morgan Stanley analyst Brian Nowak estimated in a note Wednesday that the figure could be more than twice that, mainly due to decreased sales-and-marketing and delivery costs for Grubhub.

Even if the companies are able to settle on a mutually agreeable price and other terms, regulators would still need to sign off on a transaction at time when a number of politicians have signaled opposition to this combination and mergers in general while the coronavirus pandemic has hobbled the economy and thrown tens of millions out of work.

While the stay-at-home orders the pandemic has triggered have been a boon to meal-delivery demand, they have also thrown up new challenges for the industry and increased the desire on the part of its main players to consolidate.

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Grubhub had previously proposed an exchange ratio of 2.15 Uber shares per Grubhub share, which Uber rejected.

TickerSecurityLastChangeChange %
GRUBGRUBHUB INC70.03+0.34+0.49%
UBERUBER TECHNOLOGIES INC.50.72-0.08-0.16%

Grubhub shares closed at $54.97 Friday, having surged on reports of a possible tie-up last week, while Uber's shares closed at $32.47. A ratio of 1.925 would value Grubhub at roughly $62.50 a share or $6 billion, while a ratio of 2.15 would value the company at $69.81 a share or $6.8 billion.

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The Wall Street Journal reported Wednesday that discussions between the companies had centered around an exchange ratio of about 1.9 and were taking place between the CEOs. Uber made an initial offer worth roughly $60 per Grubhub share earlier this year and has increased the exchange ratio in several offers since.

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Meanwhile, two European food-delivery players, Delivery Hero SE and Just Eat Takeaway.com NV, have considered potential Grubhub bids but are unlikely to jump in at least for now given that Uber appears to be in pole position, people familiar with the matter said.

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