What happened

Shares of Grubhub (NYSE:GRUB) jumped last month as news broke that Uber (NYSE:UBER) was interested in acquiring the restaurant-takeout marketplace. Such a deal, which has not gone through, would mean a combination between the #2 (Grubhub) and #3 (Uber Eats) restaurant-delivery companies, posing a challenge to DoorDash's leadership.

Whether a deal goes through remains to be seen, but the news sent Grubhub stock up 19% last month, according to data from S&P Global Market Intelligence. As you can see from the chart below, the gains came entirely when reports of the talks broke, but Grubhub shares held most of the gains through the rest of May.

^SPX Chart

^SPX data by YCharts

So what

Shares of Grubhub jumped 29% on May 12 after The Wall Street Journal reported that the two food-delivery giants were in talks to merge in what would be an all-stock deal. At the time, Grubhub had asked that Uber pay 2.15 of its shares for each one of Grubhub's, a price Uber management considered too high. 

The Grubhub app open on a smartphone.

Image source: Grubhub.

Such a tie-up would be the latest and biggest merger in a long line of industry consolidation, as Grubhub has made several acquisitions in its history, including Seamless, Order Up, Foodler, Level Up, and Eat 24 from Yelp. Last year, Amazon folded its restaurant-delivery operations, Amazon Restaurants, and DoorDash acquired Caviar from Square for $410 million, showing the intensifying competition in the industry. Currently, there are four major players in the industry with Postmates being the #4 company after DoorDash, Grubhub, and Uber Eats.

Now what

Grubhub has been losing market share for years, and its business has flopped over the last year as profits have been essentially erased by competition, and revenue growth has slowed significantly. The challenges of the pandemic  have also added to the uncertainty as the restaurant industry could emerge significantly depleted. In addition, there's been a backlash against such delivery apps for charging exorbitant fees that make it difficult for restaurants to make a profit on delivery orders. 

Even if the two companies agreed on a price, antitrust issues could block a deal as a merger would essentially turn the industry into a duopoly.

CNBC reported last week that Grubhub had attracted interest from two European delivery companies, Just Eat and Delivery Hero, but continued to hold talks with Uber. A breakup fee in which Uber would pay Grubhub a pre-determined amount if the deal were blocked has become a sticking point.  

With three potential buyers now interested in Grubhub and the company facing plenty of challenges, a sale seems likely.

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