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Uber to Buy Postmates for $2.65 Billion

Uber Technologies Inc announced on Monday that it would buy San Francisco-based Postmates Inc in a $2.65 billion deal. It is looking to expand its reach into the food-delivery market as the coronavirus crisis upends its core ride-hailing business.

This move is just weeks after Uber walked away from a deal to buy food delivery company GrubHub. This would have given Uber’s money-losing restaurant delivery service a leg up on DoorDash. European food-ordering companyTakeaway.com NV scooped in to buy GrubHub in a $7.3 billion deal.

As millions of Americans were marooned at home by the coronavirus crisis, food delivery businesses have seen orders surge. Traditionally, capital intensive businesses, however, have also kept commissions low. This is to fend off increased competition in the space.

Uber has been under pressure, as ride-hailing services across the globe plummets because of lockdowns. It offered a premium of about 10% on Postmates’ last valuation of $2.4 billion. Uber’s shares then were up by 4.5% in early stock trading.

More people and more restaurants have come to use their services, said Uber Chief Executive Officer Dara Khosrowshahi. Uber Eats Q2 bookings are up more than 100% year-on-year.

The deal after close, is expected to generate about $200 million synergies in two years, Khosrowshahi said. The transaction should be profitable for Uber, he added.

 

Stockholders Support the Uber-Postmates Transaction

Uber aims to grow its presence in on-demand food delivery while its core ride-hailing business struggles. This is as food delivery companies try to survive a crowded, intensely competitive field.

For the company’s stocks, Uber currently estimates that it will issue about 84 million shares of common stock. That is for 100% of the fully diluted equity of Postmates, the company said in a statement.

Both companies’ boards have approved the transaction. Stockholders that represent a majority of Postmates’ outstanding shares have committed to support the transaction, Uber added.

Postmates operates in 4,200 U.S. cities. It delivers products like sushi, coffee or pairs of jeans from restaurants and stores to customers’ doorstep. “Have chips but no guac? Postmate it”, is one of its many taglines.

Founded in 2011, Postmates accounted for 8 percent of the U.S. meal delivery market in May. Its rival DoorDash was leading with a 44% market share, according to analytics firm Second Measure.

The Stock market reported Postmates raised $225 million last year, while Doordash raised $400 million from private investors. That was at a valuation of $16 billion in June.

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