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Grubhub would "fit like a glove strategically': Analyst on possible Uber acquisition

Uber is said to have approached Grubhub with a buyout offer. Dan Ives, Wedbush Securities Managing Director joins Yahoo Finance's On The Move to discuss the possible deal.

Video Transcript

JULIE HYMAN: But there is another breaking news story that we have to get to as well, and that has to do with Uber and Grubhub. Bloomberg is reporting that Uber is in talks to acquire Grubhub. It's not clear whether these discussions will yield any actual deal, but Dan Ives is joining us now to talk us through. So Dan Ives, Wedbush Securities Managing Director joining us on the phone. So Dan, you know, we have been watching both the ride share and the food delivery businesses very closely. Uber actually recently pulled back a little bit on its Eats business in certain cities. So does this kind of deal make sense to you?

DAN IVES: Look, it does make sense in the fact that it would be an offensive and defensive move. Now pre-COVID, this is not a deal that we would expect to happen, but it's a new environment for the likes of Uber, and if you look at the potential acquisition, it would significantly take out a competitor, give them 70% market share, as well as also giving the ability to show profits on that Eats business, which would be significant.

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ADAM SHAPIRO: Hey Dan, it's good to hear you. Adam here. We heard from Dara Khosrowshahi when they reported their earnings. He said, quote, "our ride's business has been hit hard by the ongoing pandemic. We took quick action to preserve the strength of the balance sheet, focusing additional resources on Uber Eats, and prepare us for any recovery scenario." Do you think this deal might have been in the works when they were reporting these negotiations?

DAN IVES: Well, I think this is something where given the dynamics in the industry right now with ride sharing obviously down 70%, 80%, Uber Eats is the Savior for Uber. And if you look at the Grubhub asset, it would fit like a glove strategically, especially where they're going, and also in terms of major cities, give them a lot more strength, you know, especially, which is going to be a focus going forward.

Now, there's also questions in terms of DoorDash and others, you know, competitively. Could this be a potential bidding war? What would be the asset in valuation? But remember, this would be a stock for stock deal in terms of how it looks, and I think this is something investors would look at positively.

DAN ROBERTS: Dan, Dan Roberts here. Thanks for coming on. It's interesting when you say that Uber Eats has been the savior lately. You know, we all remember before Uber went public, and we finally got Uber's own valuation of Uber Eats. And back then, Uber broke it out at $20 billion, and people kind of said, really? Because up until then, it seemed like a side note.

If this new deal happens, do you think eventually it starts to change the fabric of the company? I mean, people think of Uber as ride sharing first, and then, oh, over here, they also have this food delivery business. Eventually, if the focus is food delivery, I mean, does Uber successfully start to look like Amazon, where it does lots of everything, or do you think the food delivery business starts to really dominate the narrative for this company?

DAN IVES: Yeah, I mean, if you go back to the narrative over the last six months, the Uber Eats business was an overhang in the stock, not just from profitability, but this is a ride sharing company, and more and more need to rationalize that business. Obviously, the world changed, and now that actually has gone from an anchor on the ship to what I view as an asset. You get that profitable, especially you get it bigger through M&A-- which is really the only way they'd go about doing it-- it changes the fabric of the company, and also it balances out some of the weakness that they're going to be seeing in ride sharing for the coming years.

And we've talked about-- in our opinion, until there's a vaccine, 30% of the gig economy essentially goes away from a consumer perspective, and some of that might not ever return. And I these are just some of the painful situations that Uber needs to face. And that's why I think the potential would be looking at this deal.

- Dan, speaking of consolidation, it's interesting to think about chaos potentially breeding creativity, and therefore, more of these kinds of tie-ups in the future as we see kind of the grocery space and that delivery space, whether it's the Instacarts of the world and even DoorDash offering those essential goods, how do you anticipate perhaps Uber wanting to create a portfolio of sorts, where it could be the one stop shop for all of those needs?

DAN IVES: Yeah, I mean-- and you look, obviously, at what Amazon has done in the grocery stores as well. I mean look, this could be the tip of the iceberg in terms of them going further after on the food delivery side as well as on the grocery side. It's a new world, and Uber needs to look in the mirror and recognize the ride sharing is going to have significant headwinds. But yet, they have an asset now that they can really field out and do something significant.

But realistically, without M&A, it's going to be in third gear. I mean, in order for this to be in fifth gear, it's going to have to be a significant acquisition. And now it comes down to does the deal happen? I mean, you look at the valuation, and in terms of Grub, and if it doesn't, then do investors get disappointed? So that's why right now investors are going to be focused over the coming weeks to see if this deal happens or not.

JULIE HYMAN: Yeah, those Grubhub shares have shot up today in reaction to this report. Dan Ives of Wedbush, good to talk to you. Be well, Dan.