An Uber Eats delivery man in Washington, the US, April 1 2020. Picture: REUTERS/JONATHAN ERNST
An Uber Eats delivery man in Washington, the US, April 1 2020. Picture: REUTERS/JONATHAN ERNST

New York — Uber Technologies agreed to buy Postmates for $2.65bn to expand in food delivery after the coronavirus pandemic cratered demand for ride-hailing, its main business, and an earlier attempt to acquire GrubHub foundered.

The all-stock deal is a modest outcome for Postmates, once a pioneer of the gig economy that was outmanoeuvred by deep-pocketed competitors. It had been valued at $2.4bn in an investment in 2019, a person with knowledge of the matter said at the time.

Uber estimates that it will issue about 84-million shares of common stock for 100% of the fully diluted equity of Postmates, the company said in a statement announcing the deal on Monday. Shares of Uber rose 5.7% before midday in New York.

“Postmates is highly complementary to Uber Eats, with differentiated geographic focus areas and customer demographics, and Postmates’ strong relationships with small- and medium-size restaurants, particularly local favourites that draw customers to the Postmates brand,” Uber said.

Pierre-Dimitri Gore-Coty, the head of Uber’s food-delivery business, is expected to oversee the combined operation, a person with knowledge of the plan said on Sunday night. Under their agreement, Postmates co-founder Bastian Lehmann and his team will stay on to manage the Postmates service, said another person, both of whom asked not to be identified discussing a private deal.

In its statement, Uber said it planned to keep the Postmates app running separately, supported by a more efficient, combined merchant and delivery network.

Since the start of the pandemic, Uber has cut more than a quarter of its staff and exited or pared back some businesses, such as electric bikes and financial services, so it could focus on core areas: ride-hailing and food delivery.

Global rides plummeted 70%, CEO Dara Khosrowshahi said in June. Uber Eats has been a bright spot for the company as stay-at-home orders and restaurant closures have prompted more customers to order in.

Uber sees advantages of combining with Postmates beyond just meal delivery. Postmates has also been an early pioneer in delivery-as-a-service, complementing Uber’s efforts in shuttling groceries, essentials and other goods, the company said. Restaurants and merchants will benefit from tools and technology to connect with a bigger consumer base, according to the statement.

“Platforms like ours can power much more than just food delivery — they can be a hugely important part of local commerce and communities, all the more important during crises like Covid-19,” Khosrowshahi said. He noted that Uber Eats bookings in the second quarter are up more than 100% from a year earlier.

Uber’s proposed acquisition of GrubHub fell through in June when European rival Just Eat Takeaway.com bought it instead for $7.3bn. Uber’s bid for GrubHub, one of the larger players in the US food delivery market, was likely to have raised antitrust concerns, according to industry analysts. The two together would have controlled more than half the US market.

An acquisition of Postmates is less likely to raise regulatory scrutiny because it would not change much in the competitive environment. Postmates, a distant fourth, would give Uber a firm lead over GrubHub, but the combined company would still trail SoftBank-backed DoorDash, the nationwide leader. Postmates would strengthen Uber’s position in Los Angeles and the US southwest, two markets where the brand is strongest.

Uber executives have been vocal for months about wanting to drive consolidation in the food delivery market, though. Postmates and Uber have allied before. The two companies sued California in 2019, alleging a state law that took effect in 2020 designed to give gig workers unemployment protections is unconstitutional.

The transaction is expected to close in the first quarter of 2021, pending regulatory approval, Uber said.

Bloomberg

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