A merger with GrubHub would have clear benefits, but Wall Street analysts worry about increased scrutiny given the deal's timing amid a pandemic and recession.
The potential deal would create a delivery megalith with market share well over 50% in major cities, but also represents a "new low in pandemic profiteering," as David Cicilline, a Republican congressman and head of the House Antitrust Subcommittee, put it.
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Getting the deal past his committee won't be easy, analysts warn, even as they cheer on the potential bolstering of Uber's delivery arm that's come front and center in recent months.
"We believe a combination of UBER/GRUB during this pandemic would receive even closer regulatory review/scrutiny than usual," Tom White , an analyst at D.A. Davidson, said in a note to clients, "given the impact any deal could have on a restaurant industry that is struggling to survive in the face of the pandemic."
Still, most analysts agree that the deal could benefit Uber and help continue Uber Eats' acceleration that hit its stride amid the pandemic.
"We believe the potential deal would make sense for Uber as it looks to drive more frequent engagement w/users across its platform and the benefits of operating both rideshare and food delivery are increasingly apparent during the current downturn," Doug Anmuth of JPMorgan told clients.
He estimates Uber's US market share to be about 28%, with GrubHub at 26%. More importantly, buying GrubHub could help Uber find dominance in major cities like Chicago, Boston, and Philadelphia.
But for the same reasons, lawmakers are worried decreasing competition could lead to higher fees and bad news for diners.
"Consumers and restaurants are using these services more than ever, and the last thing they need is an increase in the extremely high fees already paid to these companies," Senator Amy Klobuchar said in a statement. "Protecting competition remains especially important as we continue to confront the financial impacts of the coronavirus pandemic."
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Most recently, talks between Uber and GrubHub were focused on the share ratio involved in the transaction, The Wall Street Journal reported. The two companies are now considering a deal that give GrubHub shareholders 1.9 Uber shares for every one they currently own — down from 2.5 in prior days — valuing the company around $60 per share, the paper reported.
Uber hasn't commented on the reported negotiations. On Monday, CEO Dara Khosrowshahi said the company is "in dialogue with many players" based simply on its size.
GrubHub said in a statement that it "remains squarely focused on delivering shareholder value … and, like any responsible company, we are always looking at value-enhancing opportunities."
For now, analysts wait to hear more.
"While we've seen food delivery consolidation play out in overseas markets over the past few years," UBS analyst wrote to clients, "we believe the US will need such consolidation to lessen competition & improve unit economics (similar to certain global Ridesharing markets)."
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