GrubHub Ditches Uber For Europe's Just Eat: What The Street Thinks

Food delivery company GrubHub Inc GRUB agreed to sell itself to Europe's JUST EAT TAKEAW/ADR TKAYY

Wednesday in an all-stock transaction for $75.15 per GrubHub share.

The announcement follows reports that Uber Technologies Inc UBER was looking to buy GrubHub for around $65 to $70 per Grubhub share.

The Uber, GrubHub Analysts

Needham analyst Brad Erickson maintained a Hold rating on GrubHub's stock.

Credit Suisse analyst Stephen Ju downgraded GrubHub from Outperform to Neutral with a price target raised from $64 to $75. 

Stifel analyst John Egbert maintained a Hold rating on GrubHub with an unchanged $50 price target.

Wedbush analyst Ygal Arounian maintained an Outperform rating on Uber with an unchanged $47 price target.

Needham: Why The GrubHub Deal Does, Doesn't Make Sense

GrubHub investors should be "more than pleased" with the deal, although there are some drawbacks, Erickson wrote in a note.

On one hand, the deal makes sense for three reasons, the analyst said: 

1. GrubHub investors are getting paid more than what the stock is fundamentally worth even at around $65 per share. 

2. GrubHub investors will become shareholders of JET, and the company prioritizes profit versus growth. 

3. JET can offer "somewhat greater resources" for GrubHub to invest with the objective of delivering sustainable growth in markets beyond just New York City.

The drawbacks include the following, Erickson said: 

1. GrubHub is a No. 3 player in most markets outside of New York City and Chicago. 

2. It is difficult to understand what JET can offer beyond fresh cash to spend on marketing, and it is unclear if there is more to the plan. 

3. It is "unclear" if GrubHub investors will be as willing to become JET shareholders after welcoming a potential deal with Uber.

Credit Suisse Says GrubHub Deal Reduces Antitrust Concerns 

GrubHub's decision to sell itself to JET will not provide the same strategic rationale compared to a sale to Uber, but it potentially reduces the likelihood of antitrust obstacles, Ju wrote in a downgrade note.

JET can offer the necessary backing GrubHub needs to grow market share at a time of growing online food orders amid lower in-store restaurant traffic, the analyst wrote.

Stifel: Food Delivery Becoming More Competitive

The geographic overlap between JET and GrubHub is minimal, and the U.S. food delivery space will become more competitive, not less, Egbert wrote in a note. The combined entity would be the largest in the world (excluding China) in terms of revenue and GMV, the analyst said. 

As part of the deal, GrubHub investors would receive ADRs representing 0.671 JET ordinary shares for each one GrubHub share.

After JET's Europe-listed stock fell 13% following reports of the deal, the implied deal value for GrubHub investors is closer to $65 per share, he said. 

Wedbush On The Impact On Uber

Uber's failure to walk away victorious in acquiring GrubHub is "a clear negative," as it will now face incremental pressure and competition, Arounian wrote in a note.

JET is a larger competitor, and its ownership of GrubHub will "only embolden the market share battle," the analyst said. 

As such, it would be wrong to fully rule out at this time Uber jumping back in with a higher offer for GrubHub although it would require a "clearer" antitrust path, he said. 

GRUB, UBER, TKAYY Price Action

GrubHub shares were up 4.49% at $61.70 at the time of publication, while Uber shares were falling by 7.78% to $32.12. Over-the-counter Just Eat Takeaway shares were down 6% at $9.40. 

Photo courtesy of GrubHub.