Uber's attempt to buy Grubhub is threatened

Enlarge / / Young man on a bicycle with the Uber Eats logo delivering food in Bucharest, Romania, 2020

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An attempt by Uber to build the largest food delivery company in the United States by buying its rival Grubhub has been immediately criticized by lawmakers, city officials and antitrust experts.

Uber and Grubhub, currently the second and third largest US food delivery companies. USA By market share behind DoorDash, they are in talks about a deal as the coronavirus crisis accelerates consumer demand for delivery services, according to two people familiar with the situation. Grubhub's share price rose 29 percent on Tuesday, giving it a market value of $ 5.5 billion.

David Cicilline, a congressman who chairs the House of Representatives antitrust subcommittee investigating the tech sector, said the Uber takeover attempt "marks a new low point in the profit pandemic."

"Uber is a notoriously predatory company that has long denied its drivers a living wage," he said, noting that Grubhub "has a history of operating local restaurants through deceptive tactics and exorbitant fees."

Wedbush analysts estimated that the combination of Uber Eats and Grubhub would have approximately 55 percent of the US food delivery market. USA, with DoorDash with 35 percent.

While food delivery appears to be more competitive than transportation, where Uber has 70 percent of the market versus Lyft's 30 percent, the proposed deal would have a dramatic impact locally.

According to data from analytics firm Second Measure, Uber's market share in New York City, for example, would grow from around 17 percent to just under 80 percent.

"I wonder what kind of arguments [Uber is going to make] about consumer benefit," said Professor William Kovacic, former chairman of the United States Federal Trade Commission. "How is this best for New York City citizens? I think [the regulators] will be very focused on that. "

If New York, or any other state, is not satisfied with the proposed settlement, it could seek a court order to block it, as happened with the recent merger between the T-Mobile and Sprint networks. New York State Attorney General's office Letitia James declined to comment on the Uber-Grubhub reports on Tuesday.

"I think Uber can expect a very close look," said Professor Kovacic, "because these providers are now such an integral part of the service infrastructure of these areas where they do business."

In defense of a deal, Uber and Grubhub may choose to argue that Grubhub could not survive on its own, given the expense required to compete in the ultra-competitive food delivery business: the so-called "bankrupt company,quot; defense.

Such an argument was recently successful in the UK, where the Competition and Markets Authority approved an Amazon investment in the Deliveroo delivery service on the grounds that coronavirus-related pressures meant that Deliveroo "would fail financially and go out of business." .

But Mark McCareins, a professor at Northwestern University's Kellogg School of Management, said he was "not overly optimistic,quot; that US officials bought the same argument. "I have not seen the [US] government make any kind of pronouncement that they are cutting special deals and applying mergers in light of the pandemic."

Meanwhile, local officials are already concerned about the power of food delivery companies to charge high fees to restaurants on their platforms.

The cut taken varies, but is generally around 30 percent, a level that restaurants complain about is infeasible but inevitable with their premises closed by coronavirus blockages.

In San Francisco, Mayor London Breed instituted a 15 percent cap on commissions, a move that prompted Uber to suspend deliveries to Treasure Island, which is located on the bay that separates San Francisco and nearby Oakland. , and is home to a number of low-income residents.

In Jersey City, Uber reacted with a $ 3 surcharge to consumers after the city's mayor imposed a 10 percent commission cap. In Chicago, an order that will take effect later this month will not force a limit, but will require transparency in rates so that customers have a clear idea of ​​how much of their payment goes to restaurants.

New York City is about to move forward: A bill seeking to impose a 20 percent cap is on the table this week, backed by Mayor Bill de Blasio, and is gaining momentum following news of the possible deal. from Grubhub.

"We are concerned with what this will mean for the future and viability of our restaurants," said Council Member Mark Gjonaj, chairman of the New York City Small Business Committee and co-sponsor of the bill. "Now more than ever, it is important how we protect an industry when it has no choice but to pick up a delivery."

Food delivery companies have jointly opposed commission limits, arguing that critics do not factor in the costs of attracting orders and meeting deliveries.

"There is a misunderstanding, at least by some politicians, about the fact that a company like Uber Eats is not just a lead generation service," Pierre-Dimitri Gore-Coty, head of Uber Eats, told the Financial Times. .

“There is a lot of skepticism about the path to profitability we are on. I am quite convinced that the model can be really profitable without having to take more from restaurants. "

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