Some things make so much sense it's frightening to think that they might not happen. We're hearing lots of rumors that Uber (UBER) might buy Grubhub (GRUB) for as much as $2.15 a share and all I can say is this would be a genius move, one that would be fabulous for everyone around.
First, I have been saying for a year now that the Achilles Heel for Uber is Uber Eats. There's just too much competition and it is crushing the bottom line. The company knows it. Investors and analysts cheered when it even acknowledged that it's losing money in some markets and that it might eventually address the situation by undoing the weaker ones. It's even gotten out of some markets. But the one that matters is the United States where all restaurants have been able to pit them against others and the anti-Grubhubbers, everyone from the short-sellers to the cabbies who are being put out of business are praying that the status quo stays the same.
On the other hand you have the original delivery company, Grubhub, which is struggling and questioning the promiscuity of customers. After owning some markets, like New York, newcomers have come in and taken their near monopoly away. They have responded with incredibly cool technology, especially in the era of Covid, where you can order from a restaurant to pick up and you know precisely when it is going to be ready. I can't imagine how much this technology can benefit restaurants which are desperate to avoid long lines waiting for food in a moment when you aren't allowed to have lines of consequence without awkward social distancing.
It gets better. Restaurateurs are plagued with how spotty delivery can be. Plus everyone wants strong competitors to the all-powerful DoorDash which just bought Caviar from Square (SQ) . DoorDash in many ways, I think, has become too powerful. A restaurant wants a partner, a partner who can get the food to the customer fastest and with the least expense all the way around, and the best way to do that is to pit a fortified Grubhub-Uber combination, the former viewed as lacking in coverage and the other thought to be pricey, against DoorDash. I am salivating at this opportunity.
The combination would be so rational that it would probably let Postmates come to the IPO table giving restaurants still one more viable alternative, one that I fear won't make it if it can't clear the tough IPO hurdle.
So, in one fell swoop this deal would create an incredible amount of value for Uber and Grubhub shareholders while giving customers the equivalent of an Uber vs. Lyft to keep prices lower. The space would go from a pariah to a godsend both for the stock market and for restaurants starved for business and desperate for delivery to work.
If I were Matt Maloney, the CEO and all around power behind Grubhub, I would actually like to hold out for 2.5 shares per Uber shares because that would make a plurality of people whole, something that this incredibly pro-shareholder man would like to do. And why not? The technology he demonstrated on Mad Money not that long ago, the godsend that allows pinpoint precision pick-up, is more valuable than ever.
That said, in the era of Covid, I'll take a deal, any deal, just to show a pulse in an M&A market that has for all intents and purposes ceased to exist.
