Uber to Acquire Postmates for $2.65 Billion

Recovering From Grubhub’s Decision

Uber (UBER) has agreed to acquire food delivery company Postmates for $2.65 billion. In early June, Uber was in talks with Postmates’ competitor, Grubhub (GRUB) about a merger, but the deal fell through and Netherlands-based JustEatTakeaway.com (TKAYY) ended up buying Grubhub for $7.3 billion instead.

Uber’s shares had one of their worst days of the year when news broke that it would not be buying Grubhub. This highlighted the fact that investors saw a need for Uber to double down on food delivery since coronavirus has done such damage to its ridesharing business.

Making Up for Lost Rideshare Business

Before the pandemic, Uber’s core ridesharing operations accounted for 75% of its business. In April, demand for Uber rides tumbled 80%. However, UberEats provided hope during an otherwise dismal period for the company. During the first quarter of the year, UberEats gross bookings reached $4.68 billion—a 52% increase from the same period a year earlier.

As COVID-19 cases rise in many parts of the US, analysts predict that demand for Uber’s ride share business may not recover for some time. However, as some states slow down plans for reopening restaurants, high demand for food delivery will likely continue.

Alleviated Antitrust Concerns

The Uber-Postmates deal is expected to close during the first quarter of 2021. Uber says it plans to keep the Postmates app operating separately from UberEats. Combined, UberEats and Postmates will be larger than Grubhub, but will still be smaller than DoorDash, which is the largest food delivery company in the US.

When Uber was discussing buying Grubhub, concerns about antitrust regulation were raised because the two companies combined would have had control of more than 50% of the US market. Postmates’ market share is much smaller than Grubhub’s, meaning Uber will likely not face as much antitrust scrutiny with this merger. Investors will be carefully watching how the announcement of this deal impacts the food delivery sphere.

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