Uber and Grubhub merger is 'logical' in competitive food-delivery space: Analyst

Uber reportedly approached Grubhub with a buyout offer, according to Bloomberg. Tom White, Senior Vice President & Senior Research Analyst at D.A. Davidson joins Yahoo Finance's On The Move to weigh in.

Video Transcript

ADAM SHAPIRO: Potentially Uber was looking to purchase Grubhub.

We want invite into the stream Tom White. He is the Senior Vice President and Senior Research Analyst at DA Davidson. And just a reminder that you have to hit star 6 to unmute your phone, Tom.

When we talk about Uber and Grubhub, Uber Eats had gross bookings in the last earnings report of $4.68 billion, and it seemed to be one of the bright spots. We have Grubhub saying not so fast. What do you think of this news?

TOM WHITE: Well, look, it's-- I think the timing is probably the most interesting element here. First off, thanks for having me.

But, you know, stepping back, I think most people and most investors have long agreed that consolidation of online food delivery globally, but certainly in the US as well, is inevitable. You've got a bunch of companies with essentially identical business models who are all just kind of bashing each other's brains out with, you know, heavy promotions, heavy advertising spend. Some of these players are private and are therefore using private capital to really just create this, you know, very fierce competitive environment, and it all just kind of spells out a landscape where inevitably you're going to see some consolidation, either via M&A or people just exiting the market.

So, you know, I think given the backdrop of the pandemic, the timing here is maybe a little bit surprising. But, you know, this story, if it's true, you know, is logical that these two-- that these two players would at least want to explore, you know, potential mergers like this.

JULIE HYMAN: Hey, Tom. It's Julie here. So you, of course, added the caveat if indeed it's credible. Do you think it is? I mean, do you think it-- as you say, maybe the timing is a little bit unusual, but you're also looking at a time when a lot of companies-- Grubhub certainly included, even though it's busier-- are still perhaps getting squeezed in various ways. So you have to wonder as well are these two companies not necessarily coming from a place of strength right now when they're trying to negotiate if, indeed, they are trying to negotiate a deal?

TOM WHITE: Look, it seems to be credible. I think the "Wall Street Journal" just picked up the story, which would seem to indicate that, you know, discussions on some level have happened or at least some sort of approach has happened. It doesn't necessarily mean, you know, a deal will get consummated, obviously.

Now, look, I think another interesting element here is, you know, if these two parties decided to try and move ahead and consummate some sort of transaction, I think you'd probably get a little bit more of an intense regulatory review period, just again given the backdrop of the pandemic, given the potential impact that this deal could have on the restaurant industry-- which is, as we all know, you know, is struggling, or a lot of restaurants are struggling. So, you know, I think that's one sort of added wrinkle here or additional consideration to any deal getting done.

Also, I would imagine any deal would have to comprise a healthy stock component, just given both companies and, in this case, Uber's focus on, you know, conserving cash. Obviously they've, you know, been laying off a lot of employees. And so those are two things that, you know, I think if the story is true and if there's something happening here, you know, those will be two, you know, potential elements to it.

AKIKO FUJITA: Tom, you know, we've talked a lot about sort of the multiple assets that Uber has that allows them to be a bit more flexible in a time like this. If, in fact, these reports are true, does that suggest a fundamental shift in the focus of the business-- in other words, not just ride hailing but really doubling down on the delivery side of things? And, I guess, as a follow up on that, is that a move that makes sense given that we don't know how long this delivery trend that has been accelerated as a result of these stay-at-home measures are going to stick around once these states begin to reopen.

TOM WHITE: Yeah, look, that's a great question. I think, you know, one of the things that I think Uber is reacting to here is that because of this pandemic, you know, this category of online food delivery just overall broadly is expanding. Now it was-- it was growing healthily on its own before the pandemic, but you've had this sort of massive pull forward of kind of future demand and future proliferation or expansion of this category very suddenly, and I think a lot of that demand creation is-- new demand creation will be permanent.

So, you know, I think Uber, you know, from their perspective probably sees that writing on the wall and is trying to, you know, opportunistically or move aggressively now to, you know, potentially consolidate one of its larger competitors. But on the flip side, you know, that could be a motivation for Grubhub to be a little bit more resistant potentially to a deal. Obviously, you know, their business might not be growing as quickly as Uber's at the moment, but as I said, this is-- you know, this is a category that looks to be just expanding in general. Large expanding categories tend to attract more capital, more investment. And so, you know, I think that's kind of the trade-off that Grubhub's probably trying to make here.

ADAM SHAPIRO: All right, now we should point out that Heidi Chung here at Yahoo Finance has reached out to Grubhub, and a spokesperson has said to Heidi we are not commenting. Back in January, of course, Grubhub put out a note in which they said any discussion about a potential merger or sale to another company, they had said in January unequivocally no process in place to sell the company, but that was a few months ago.

We want to thank Tom White for joining us. Tom White is the senior vice president and senior research analyst at DA Davidson. We're going to keep watching this Uber-Grubhub news.