Uber Technologies Inc. (UBER) is said to be in advanced talks to purchase rival food delivery company GrubHub Inc. (GRUB) in an all-stock takeover deal, Reuters reported.
GrubHub shares leaped 37% to $64.25, while Uber rose 6% to $33.37 in early afternoon U.S. trading.
An agreement could be reached as early as this month, Bloomberg News reported.
The takeover report talks come after Uber last week disclosed that the surge in food delivery demand was offsetting weak rides demand during the coronavirus pandemic. Uber CEO Dara Khosrowshahi said that although rides bookings were down 80% in April, total bookings were only off about 40%, helped significantly by the company’s Eats food delivery business. First-quarter revenue generated from restaurant food deliveries increased 53% to $819 million as the coronavirus-related stay-at-home orders boosted demand for the service.
Commenting on the takeover reports, Wedbush analyst Ygal Arounian said he viewed a potential deal as both an “offensive and defensive” move for Uber. Wedbush has a Buy rating on Uber stock with a $38 price target.
“Clearly this would be an aggressive move by Uber to take out a major competitor on the Uber Eats front and further consolidate its market position, especially as the COVID-19 pandemic continues to shift more of a focus to deliveries vs. ride sharing in the near-term,” Arounian wrote in a report to investors.”
Arounian noted that a combined Uber Eats and GrubHub company would provide it with 55% market share in the food delivery market and turn it into a clear leader in the industry. This would be the first time since 4Q17 that a single player controlled more than 50% of the market, he added.
Furthermore, Arounian would expect significant cost-saving opportunities from a combined company, particularly in sales and marketing expenses, but also in technology, and headcount, which can go a long way in “alleviating the gross margin pressure driven by the actual cost to deliver meals”.
Overall, Wall Street analysts have a bullish outlook on Uber stock boasting 26 Buys, 2 Holds and 1 Sell that add up to a Strong Buy consensus rating. The $39.59 average price target projects shares have room to increase 20% in the coming 12 months. (See Uber’s stock analysis on TipRanks).
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