Firm's $2.65 billion deal for Postmates expands reach in market, fuels hope of ride-share gain

By Heather Haddon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 7, 2020).

Uber Technologies Inc. said its $2.65 billion deal for rival Postmates Inc. will help it better compete in restaurant delivery and the market for delivering groceries and other staples, a signal of the ride-hailing company's ambitions to provide a wider range of items to consumer doorsteps.

With its all-stock purchase of Postmates, Uber would become the second-largest restaurant delivery service in the U.S. by market share, following DoorDash Inc., according to research firm Edison Trends. Grubhub Inc. ranks third.

San Francisco-based Uber said it was attracted to Postmates both for its large delivery presence in several U.S. cities and partnerships with companies including Walgreens Boots Alliance Inc. and Seven & i Holdings Co.'s 7-Eleven. But Uber executives said the deal also presents an opportunity to bring more customers to its ride-share business, which has been rocked as the coronavirus pandemic has hurt demand across its markets for months.

"These every day, frequent interactions create habits with customers," Chief Executive Dara Khosrowshahi said in an investor call Monday.

Uber shares rose 6% in Monday trading. Rival Grubhub closed 4.4% higher, a sign that investors welcome consolidation in the delivery sector.

Competition in food delivery has grown rampant across the globe, fueling deals to help companies reach profitability. Uber sought to buy Grubhub earlier this year to shore up its position in the U.S., but the deal fell apart under regulatory concerns and disagreements over a price. Dutch food-delivery giant Just Eat Takeaway.com NV and Grubhub last month agreed to a deal for more than $7 billion.

The pandemic, though, has provided an opportunity for Uber and its rivals in food delivery. Grubhub's orders grew 28% in April and May compared with the previous year as diners turned more to delivery during the pandemic, according to an investor presentation.

Uber said Monday that bookings for its Eats division in its second quarter more than doubled from the previous year. Postmates said its gross orders grew 50% in its second quarter from the previous one, with the majority of those transactions coming from restaurants.

Online grocery delivery has also boomed during the pandemic, with online service Instacart Inc. reporting a surge in orders from supermarkets. A number of restaurant delivery players have tried to get a cut of the grocery market. DoorDash does grocery delivery for Walmart Inc., and Uber took a majority stake in grocery-delivery company Cornershop.

Mr. Khosrowshahi said he expects competition to last in restaurant delivery in the U.S. for years, fueling the company's interest to get into other to-go services even if that means bumping up against Amazon.com Inc. and Walmart.

"The category and markets are going to start overlapping with a lot of other players," he said.

The deal will translate into continuing discounts as rivals try to compete for customers and restaurants, said Robert Mollins, of market-research firm Gordon Haskett. "The promotional environment won't be slowing down anytime soon," Mr. Mollins wrote in a note.

Uber Eats has a larger international footprint than its other U.S.-based food-delivery rivals. The ride-share company said Monday that Eats has a top position in dozens of global cities, including London, Paris and Mexico City.

Postmates, founded in 2011 and based in San Francisco, is the smallest among the major U.S. food-delivery companies. The company had raised more than $900 million in funding, according to PitchBook.

Postmates held discussions with other possible buyers since at least last year, and had evaluated pursuing an initial public offering.

The deal will boost Uber's food footprint in Los Angeles, Las Vegas, Phoenix and other cities in the South and West that remain Postmates strongholds. Postmates had $643 million in gross bookings in its first quarter this year, translating into $107 million in revenue, according to a presentation.

Uber said it would keep the Postmates app running separately after the deal's closing, expected in the first quarter of 2021. It will provide bridge financing to Postmates until the deal's close, Uber said. The companies anticipate the transaction could yield $200 million in cost savings, mostly due to reductions in sales, marketing and other administrative costs.

--Dave Sebastian contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com

 

(END) Dow Jones Newswires

July 07, 2020 02:47 ET (06:47 GMT)

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