GruberHub Rising? GrubHub (GRUB) and Uber (UBER) Talks Continue

Ever since this pandemic business started, a lot of folks out there have turned to GrubHub (NYSE: GRUB) for food deliveries to help keep themselves indoors. Meanwhile, Uber (NYSE: UBER) has taken it on the chin as customers found a lot less need to engage in ride-sharing since there was nothing open to driving to or from anyway. Now, new reports suggest the two companies are working on the details of a merger that will make one monster company in food delivery circles.

Devil in the Details

The two companies have actually progressed quite a ways down the path toward a merger here, reports note, as the issue now seems to be just how much stock is actually going to change hands. Uber recently made an offer of 1.9 shares per GrubHub share, a figure GrubHub finds too low. Uber, in the grandest auction tradition, is looking to potentially increase the offer to 1.925 shares per GrubHub share, but GrubHub is still likely to find that too low. GrubHub had originally proposed a deal featuring 2.15 shares of Uber for every one of GrubHub, but Uber rejected it. Thus, the gap to agreement looks fairly narrow.

Still, if the numbers are worked out, there will still be plenty of details to settle, which makes any sort of agreement unlikely to come by the end of this week. Then, the process will have to proceed to federal regulators who are markedly unfriendly to this sort of transaction in this sort of environment; when businesses are already frantically laying off—or even just “furloughing”—workers in the face of economic catastrophe, federal regulators aren't likely to endorse a move that will result in more workers fired as companies pare back redundancies.

300 Million Good Reasons to Make the Merger

Inevitably, some will ask why GrubHub and Uber are even bothering, then. With the federal government likely to scuttle the whole process before it can even begin, it looks like an exercise in futility that makes a treadmill look productive by comparison. But the price tag of such a move is a definite help.

The two companies together estimate that they'll save a hefty $300 million annually by making a merger happen. Morgan Stanley analysts, meanwhile, suggest that's understating it, and vastly; Brian Nowak with Morgan Stanley figures that the savings could actually be over $600 million, thanks to a combination of reduced sales and marketing costs, as well as lowered delivery costs for GrubHub.

If Uber does want to do the deal at all, however, it may simply want to eat the terms; both Just Eat Takeaway.com NV (OTCMKTS: TKAVY) and Delivery Hero SE (OTCMKTS: DLVHF) have expressed interest in hooking up with GrubHub. The two backed off, though, as it became clear GrubHub's first choice is Uber.

Right Place, Wrong Time

It's hard for any business to turn down nine-figure annual savings. Especially when said business is walking into a market jam-packed with uncertainty. With reports projecting that one in four restaurants aren't going to survive the coronavirus shutdowns, it's clear that GrubHub won't find a new market to break into unwelcome at all. Our own research has suggested GrubHub could be a real takeover target, and if GrubHub is that much bigger from incorporating Uber, it may fend off such attacks. Meanwhile, Uber—who's been socked with a loss of its primary business as well as a string of bad news in its stock price—would welcome a chance to get into a new line of work itself and help pad some of its losses.

The fact that the two companies are so close to a deal that only fractions of a share separate the two sides suggests that a deal is likely to be made. Yet at the same time, we know that the feds won't be happy about approving a deal that will almost certainly mean layoffs in the midst of the worst employment environment since the Great Depression.

A GrubHub / Uber merger, to go through, would have to take great pains to show regulators how it won't be making the unemployment situation worse by its mere existence, and that's a tough row to hoe given the almost certain redundancies a move would create. The cost savings would help make its case—it improves the chance that workers will have paychecks that don't bounce—but unless the combined GruberHub can keep its people employed, it's not likely to clear for some time to come.