| Hi all, it's Eric. Politicians angry about food delivery businesses bilking restaurants got a big result this week, if not necessarily the one they expected. An anticipated merger between Grubhub Inc. and Uber Technologies Inc.–a deal over which several Democratic lawmakers vowed there would be an antitrust fight–fell through. Grubhub instead sold itself to the European Just Eat Takeaway.com NV, creating one of the biggest meal delivery companies in the world. Depending on how you look at the deal, it can seem like an obvious decision for Grubhub or a perplexing one. The argument for it is simple: Just Eat was willing to pay more than Uber. Opposition from U.S. officials centered on Uber's position in the U.S. food delivery market, so Grubhub was also choosing the path with less regulatory risk. What's not to like? "The board had a very easy decision to make," Grubhub Chief Executive Officer Matt Maloney told CNBC's David Faber. On the other hand, Grubhub's investors are getting paid in Just Eats shares, which plummeted after the deal was announced. Also, the consolidation that officials were worried about may be a necessary step to creating any sustainable food delivery businesses. Both Uber and Grubhub are losing more money than they'd like since they have to compete, not only with each other, but with privately-held DoorDash Inc. and Postmates Inc. Grubhub is the only one of these companies that has managed to turn a profit, and it recently had to abandon its guidance for 2020 because of Covid-related disruptions. Maloney said in the interview on CNBC that the deal would mean "doubling down on a winning strategy." In other words, the money war in U.S. food delivery continues full steam ahead. (It's possible Maloney's bosses at Just Eats push for a more restrained approach. We'll see.) Merging with Uber would have moved the market much closer to duopolistic competition between DoorDash, the current U.S. market leader, and the Uber-Grubhub conglomerate. That might have led to what investors refer to as "rationalization"–when everyone starts simultaneously raising prices to a level that allows them to operate profitably. Of course, raising fees further would likely result in significant blowback, given the widely-held perception that companies like DoorDash and Grubhub are gouging restaurant owners already. In any case, the incentives remain to continue torching investor cash. The collapse of the deal leaves Uber and its Chief Executive Officer Dara Khosrowshahi, who was supposed to be its deal-maker-in-chief, in a tough spot. Uber could try to buy Postmates, but the company's investors seem to be holding out for a price that isn't justified by its market position. Or it could look at DoorDash. But if there were fears about an antitrust review derailing the merger between Uber and Grubhub, merging with market leader DoorDash would likely be even more problematic. Maybe Grubhub starts to look more powerful as part of a global conglomerate, giving Uber cover to do a deal with DoorDash down the road? But being less of a threat wouldn't be a great situation for Uber either. Former Uber Chief Business Officer Emil Michael laid out the situation Uber faces in a series of tweets Thursday. Michael argued that Uber shouldn't have let DoorDash establish the pole position in the first place, then said best outcome for Uber is still a deal with DoorDash. "That merger could only happen if @Uber's market cap grows significantly AND, I believe, the CEO of @DoorDash becomes the heir apparent of the combined company," he writes. "Making @Uber/@DoorDash a founder-led company again would be a *fantastic* thing in my view." Of course, Khosrowshahi may not be enthusiastic about making a deal that costs him his job. But as long as he's caught in a four-way battle for food delivery supremacy in the U.S., it's not going to be a particularly rewarding one. –Eric Newcomer | 
Post a Comment