Grubhub stock price skyrockets on Uber takeover talks

Grubhub stock price skyrockets on Uber takeover talks

  • Uber launched all-stock bid for its rival Grubhub
  • If the takeover is completed it would complete the largest food-delivery company in the United States
  • Shares of Grubhub explode nearly 30% higher on the takeover talks

Shares of Grubhub (NYSE: GRUB) exploded nearly 30% yesterday after it was reported that Uber (NYSE: UBER) has launched a takeover attempt. The deal could be completed as soon as this month, although it has already drawn much criticism from lawmakers and city officials. 

Fundamental analysis: Uber comes under fire

The ride-hailing giant made a takeover approach for the meal-delivery company Grubhub in recent days, the New York Times reported. Accordingly, Grubgub has asked for two Uber stocks for one of his own in order to accept the bid. Uber would want to complete the all-stock deal as early as this month.

Grubhub, the third-largest meal delivery company in the United States behind Uber Eats and DoorDash is currently valued at $4.5 billion, although the surge in stock price pushed the market valuation to around $5.5 billion. 

If the deal goes through, it would create the country’s largest food-delivery company as the COVID-19 outbreak boosted the demand for food delivery services. Analysts project that the combination of Grubhub’s network with Uber Eats would account for 55% market share. 

However, Uber’s takeover attempt has already drawn strong criticism from lawmakers, city officials and regulators. 

“Uber is a notoriously predatory company that has long denied its drivers a living wage,” said David Cicilline, a congressman who chairs the House antitrust subcommittee investigating the tech sector, before adding that Grubhub “has a history of exploiting local restaurants through deceptive tactics and extortionate fees”.

According to Cicilline, Uber’s takeover approach “marks a new low in pandemic profiteering”. 

Professor William Kovacic, a former chair of the US Federal Trade Commission, echoed Cicilline’s comments as he wonders “what kinds of arguments [Uber is] going to make about consumer benefit”.

“How is this better for the citizens in New York City? I think [regulators] will very keenly focus on that,” said Kovacic. Uber Eats would acquire nearly 80% market share if its bid for Gtubhub is accepted and ultimately cleared by regulators. 

Technical analysis: Grubhub price skyrockets

Shares of Grubhub exploded higher on the reports of Uber’s takeover approach. The stock price went from $47 to nearly $65 yesterday to hit the highest levels since September 2019. Grubhub is now one of the rare companies whose stock is trading at the new 2020 highs given the huge market correction amid the COVID-19 outbreak. 

Grubhub stock daily chart (TradingView)

Grubhub stock price has, in the meantime, returned below $60 to retest the broken support, now expected to act as a resistance. The buyers are likely to target key resistance around the $68 mark, around 20% higher compared to the current market price of $57.12.

On the other hand, Uber stock price has already erased gains from yesterday as it trades nearly 3% lower on the day. Today’s pullback has seen shares of Uber testing the previous resistance, now support, near $31.50, offering a solid opportunity to buy Uber shares

Summary

Shares of Grubhub exploded almost 30% higher yesterday after the company was approached by Uber for takeover talks. The surge in price increased the market valuation of Grubhub to $5.5 billion.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

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