Acquiring Grubhub is the next logical step for Uber: Barclays

On Wednesday, Barclays analysts weighed in on reports of the potential takeover of Grubhub by rival Uber, with the investment firm opining that Grubhub could get $75 a share from a merger, valuing the food delivery service at $7.2 billion. The Final Round panel discusses what the possible tie-up means for the food delivery space amid the current environment.

Video Transcript

MILES UDLAND: It's time now for our call of the day. Today we were talking about Barclays' latest note on what the potential Uber and Grubhub tie-up could mean for the food delivery space. The company says now-- or the firm, rather-- says that now is the right time to see a merger in the food delivery space. You know, Jen, we saw this news yesterday. And we figured, yeah, of course. There needs to be consolidation.

We talked through a lot of the dynamics that are taking place in this industry. But you know, you look at some of the key markets-- New York, Chicago, Miami. This combined company would have significantly more than 50% market share-- 80% market share here in New York City, for example. I think there's logical reason.

I mean, Barclays notes the industry, the food delivery industry, lost a billion dollars last year on sales that are not quite that. So, I mean, obviously volume is higher. But you know, there needs to be consolidation. It just seems that the hurdle here, the antitrust hurdle, could be a little bit higher than perhaps yesterday's news suggested.

JEN ROGERS: Yeah, the antitrust hurdle is one thing. And I find also starting to hear grumblings from the restaurants themselves. And I don't know if you've seen this, but during a time when people have been sheltering in place, restaurants have been advocating just come in and pick up. They make so much more money doing it that way than going through these services where they're just getting crushed. And as we're starting to focus a lot of our attention on sort of the smaller mom and pop businesses, they are not in love with these services.

As you noted, food delivery lost a billion dollars collectively in here. But we know there has to be consolidation. So basically, this note, to me, says this has to happen. We all know it has to happen. And it's just a matter of time and the pieces of the chessboard that are going to go together.

And speaking of together, I feel like we need to give them some credit, and also learn how to pronounce the title here when you combine Grub with Uber. Is it "Gruber"?

DAN ROBERTS: "Gruber."

JEN ROGERS: By the way, they did G-R-U-B-E-R. I thought it was clever.

DAN ROBERTS: Now, don't you think that if this deal happens, you guys, they would just drop the Grubhub brand name and combine it under Uber Eats? Especially because, I think, branding-wise, arguably, despite all of Uber's various stumbles and problems, Uber at this point is a more known and hotter brand, arguably. At least certainly more than Seamless, which, you know, is the dominant one in New York. But there isn't really anything kind of sexy and new and exciting about Seamless, I'd argue, even though it is number one in New York, and that it's owned by Grubhub.

Now, what's interesting here twofold, as Jen said, first of all, this is an industry that probably needs some consolidation. I mean, to think that the industry lost money in 2019. There's too many of these things. So we need some consolidation.

And then number two. It's interesting, as the note says, this would bring Uber Eats from the number two [INAUDIBLE]. I didn't quite agree Uber Eats was number two yet, maybe in some markets. I thought it was a little more distant.

But sure. I mean, if you can, you buy to get bigger. Although, as I mentioned when we first saw news that this deal might happen, there's also a little bit of weird optics right now considering Uber just laid off of people, and it's about to make a big acquisition. But hey.

MILES UDLAND: Well, you know, Dan, it's interesting you say that, oh, well, we need consolidation, obviously. I think it actually brings up an analogy that comes over from the sports discourse, which is people are always confused when fans and commentators take the side of the owners rather than the side of the players. And here, I think, by saying there needs to be consolidation, we would be taking the side of the owners.

I mean, if you're an investor in Seamless, Grubhub, you think there needs to be consolidation. If you're a restaurateur, I don't think you believe that there needs to be consolidation in this space. I think you actually would prefer increased competition because your terms are not really what you want them to be at this point, right? I think you want there to be a more active ecosystem around food delivery services than there is right now.

DAN ROBERTS: So I suspect it would depend on who you ask. Because I agree with you in theory that the more services, the [INAUDIBLE] the market. That said, we've also heard a lot of anecdotal stories and seen stories about how every time there's yet another player, they have to go out and make deals with the restaurants one by one, talk to them, talk about terms. The restaurants start to deal with the headache of, we have five different types of delivery services where they're sending people to us to pick up a bag take-out.

Some treat us better than others. Some give us a worse cut than others. You know, there's a lot of controversy about restaurants getting hosed, especially during this time, when they're already under financial duress from certain delivery apps that really don't give them much of a cut or charge them fees. And so, I guess, hypothetically, if the combined Uber and Grubhub has good terms for restaurants, I would think some restaurants would just be pleased to deal with one fewer player.

MELODY HAHM: That's interesting, Dan, because during the course of this pandemic, the restaurant owners that I've spoken with, especially the smaller ones, they originally were trying to make sure that it was an exclusive partner, right? A Postmates exclusive, or a DoorDash exclusive. It's only available on Uber Eats. And we saw that, even with some of the bigger fast food giants and, of course, those higher end chains.

But I think during this process, there has been a-- we are so desperate right now to get our food out the door and we want to stay afloat, that it almost doesn't matter. There has been this level of agnostic thinking that, I think, has been developed over the last couple of months. So, to your point, if there is consolidation, one would hope-- but I'm not so optimistic about this outcome.

One would hope that there would be better terms in place. But I have a feeling that maybe it will just make it that much more-- you know, Uber and Grubhub understand that restaurant owners are so desperate. So I don't think they're necessarily looking out for their best interests.

We even saw a class action lawsuit being filed that was actually filed by customers. It was actually filed by restaurant owners. Which just shows that people are trying to figure out a way to help these local businesses. But to Jen's earlier point, by using these services, oftentimes, unless you're tipping $15 for a very cheap meal, I don't really think they actually benefit from these transactions.

JEN ROGERS: And add one more regulatory hurdle there, is just San Francisco is looking at capping commissions for food delivery apps at 15% because they've just been raking it in. And people want their local restaurant to stay around. So it's not just antitrust. There could be regulatory hurdles coming from other directions, as well.

MILES UDLAND: Yeah, I think, again, this conversation is not going to go away. I'll be very curious to see if this deal actually goes through because follow-on reporting suggests that it's been a year in the making. Grubhub shares have been between $80 and $30 over that period. Why does Uber think now is the time? So on and so forth. Certainly a lot to chew on here that we will-- I didn't mean to do that, but you know, we all got it. Fine.

We'll talk about this in the weeks ahead. And we'll leave the food analogies behind when we do those conversations.