Even though everyone and their mother use rideshare services, the industry is still new and relatively small. Every one of the bigger names might potentially have a ripple effect through the industry. That’s why here at Drover, we like to keep a close eye on the industry.
The Potential Merger
For the last couple of months, two major industry players, Uber and GrubHub have been talking about joining forces. The two companies are so big that their combined market share would’ve given them a huge advantage over the competition and allowed them to request higher commissions.
However, just by looking at the title, you can suspect that things didn’t go the way most of expected them to. The negotiations seemingly took a sudden left turn last week when GrubHub walked away from the deal. Instead, the company decided to merge with the Netherlands-based Just Eat Takeaway.
What We Know About the Fall Out
While we don’t know for certain how the deal fell through, some early reports can give us an idea of what actually happened.
For example, just a week before everything went sour, Bloomberg reported that the negotiations between Uber and GrubHub weren’t looking too good. According to the sources close to the situation, the two parties couldn’t settle on a reverse breakup fee.
GrubHub wanted a security policy in case the deal fell through. The company wanted Uber to agree to pay them a fee in case the US regulators blocked the deal between the two rideshare/delivery giants. While we don’t know the exact amount GrubHub wanted, we know that it was a hefty sum.
That wasn’t the only issue either. There was also the issue of termination fees.
If the two companies managed to strike a deal and after a while, it fell through, both would be required to pay a fee. GrubHub had a terrible fourth-quarter last year, so naturally, they didn’t want to pay the fees. Having to pay a large sum in this business climate wasn’t something Uber wanted to do.
What the Officials Say About the Failed Deal
Despite what the sources close to the situation have said, GrubHub officials have a different story. According to Matt Maloney, the CEO of GrubHub, the deal didn’t happen because the company simply didn’t like Uber’s final offer.
He says that in terms of economics, there was no comparison between the two offers. Reportedly, Uber’s offer was somewhere between $60 and $65 per GrubHub share. On the other hand, Just Eat Takeaway offered them $75 per share.
After the deal is finalized, Maloney is expected to join the Just Eat Takeaway management board. Once he joins the board, he will lead the combined business in the United States and Canada. Besides Maloney, two additional GrubHub directors will join the company’s supervisory board.
How GrubHub’s Decision Confused Uber Officials
GrubHub’s decision to merge with Just Eat reportedly came as a complete surprise for Uber representatives. As CNBC reports, Uber officials feel like GrubHub people were stalling the deal and are caught by surprise that they struck a deal with another company so quickly.
According to inside sources, fee disagreements are the only reason why the two rideshare/delivery companies couldn’t come to a mutual agreement.
Uber feels like the food delivery industry needs more strength in order to reach its full potential. There are still consumers to reach and restaurants to strike deals with. In Uber’s opinion, this can be easily accomplished with more unity. However, that doesn’t mean Uber will accept every deal at any price.
You see, Uber was concerned with increased deal leaks as well as the New York Times’ recent story on GrubHub’s questionable fee practices. The company also feels like their stock has more upside than Just Eat Takeaway shares, which would make it more valuable to GrubHub shareholders.
People representing Uber felt that their former partner-to-be declined their offer because they wanted a deal with a company that will allow the current executives to run the business.
How Will the New Deal Impact the Industry
Never heard of Just Eat Takeaway? That’s because the company is pretty new. It came out of a union of two European companies, Just Eat and Takeway.com. By partnering with a big European player like this, GrubHub will definitely make a healthy profit and increase its value.
But the question is, what will be the impact of this union on the entire rideshare/delivery industry?
For some people, the new deal is good news. For instance, many people were worried that the union of Uber and GrubHub would increase commission fees. Higher fees would be detrimental to restaurant owners, who are increasingly relying on rideshare delivery services to distribute their food.
As Forbes reports, Matt Friedman, the founder of Wing Zone, believes that the deal could bring the fees down. That would be great news for restaurant operators. At the moment, GrubHub charges a 25% standard fee, along with a 3% fee for credit cards, and a $0.50 fee for every single meal. This adds up to around 30%.
Friedman feels that the merger could lower the fee down to 20% overall, which would be a huge change. The restaurants themselves could also bring the fees down next year. Currently, the delivery companies are dictating the fees because a huge number of restaurants around the United States is still closed due to COVID-19.
Once that’s over with and restaurants start working normally again, things will change.
Stay Tuned for More
How will the new deal impact the industry in the long run? Only time will tell. But be sure that you’ll read all about it on our blog. If you want to stay in tune with the rideshare industry, follow Drover for more news. Until then – stay safe – and if you need rideshare in Nashville, you know who to call.
