Uber Courts Grubhub for a Buyout
Uber’s giving Grubhub the elevator pitch; “as two of the largest food delivery apps, a merger would consolidate our dominance. We could finally turn profitable with the help of cost synergies and leapfrog our number one rival, DoorDash!”
Grubhub admits consolidation would “make sense,” but talks are likely to be drawn out for the rest of the month. The deal could still fall through, it was leaked only today, but shares in target company Grubhub are trading like this thing is already done.
The two companies are conducting due diligence at a brave time. The majority of merger and acquisition activity is on pause amid the current crisis, and some companies set to merge are even fighting in the courts to wriggle out of pre-corona agreements.
The terms of a deal between Uber and Grubhub need to be put into writing. We could see a buyout price in cash or stock and perhaps also with contingent value rights, extra candy for investors if profitability is achieved sometime soon. The financing will need to be secured, some early regulatory and shareholder approvals, and then some stricter, final-mile approvals from anti-monopolists.
These hurdles can take months or years, so official timelines represent the goal, not the plan. If there’s a second coronavirus wave before this gets done, it’s unclear if the deal would plow on.
It’s likely, because what’s another three weeks of lockdown when the global economy has already been under so long? If investors were to panic-sell Grubhub below the merger price, that could create a good trading opportunity for arbitrage. Keep an eye on it!
