Global M&A Portfolio Changed by COVID-19

Uber Actively Negotiates Merger with Delivery App Grubhub

FCA Holding Company Exor Fails to Sell Reinsurance Firm

[Image source=Reuters Yonhap News]

[Asia Economy Reporters Kwon Jaehee and Jung Hyunjin] The global M&A market is experiencing mixed fortunes amid the COVID-19 pandemic. While Uber, the world's largest ride-sharing service, is moving to acquire Grubhub, the American equivalent of 'Baedal Minjok,' Italy's Exor, the holding company of automaker Fiat Chrysler Automobiles (FCA), has failed to sell its reinsurance company. M&A activities among contactless businesses are expected to become more active following the COVID-19 outbreak.

According to Bloomberg and other sources on the 12th (local time), Uber is conducting concrete negotiations aiming to acquire Grubhub, the second-largest player in the U.S. market. Bloomberg cited insiders saying, "Uber made the first acquisition proposal to Grubhub earlier this year," and "If discussions proceed smoothly, an agreement could be reached within this month."

Founded in 2004, Grubhub pioneered the food delivery market in the U.S. and is the only company solely focused on food delivery services listed on the U.S. stock exchange. Grubhub holds about a 30% market share in the U.S.

Uber owns a subsidiary called Uber Eats, which is similar to Grubhub. This subsidiary ranks third in the industry by market share. While Uber's ride-sharing service performance has declined since COVID-19, Uber Eats' first-quarter bookings surged 50% compared to the same period last year. This negotiation is considered a so-called 'COVID deal,' part of a business portfolio restructuring in response to the pandemic. It reflects Uber's intention to grow its delivery service business as a core operation by acquiring Grubhub. Uber stated during its first-quarter earnings announcement that it would "divest non-core businesses and focus additional support on Uber Eats, which has high growth potential."

Although specific details such as the per-share acquisition price have not been disclosed, The Wall Street Journal (WSJ) reported that "Grubhub is seeking to exchange one of its shares for 2.15 Uber shares." Based on Uber's closing price the previous day, Grubhub's acquisition price is estimated to be around $6.1 billion (approximately 7.44 trillion KRW). Following the merger news, Grubhub's trading volume surged on the U.S. stock market, triggering trading halts three times. Grubhub's stock price jumped over 30%, from $46 to the $60 range that day.

On the same day, Exor's sale of the reinsurance company PartnerRe fell through as the French insurer Covea, the counterparty, decided to cease negotiations. Although the deal was a large-scale M&A worth $9 billion (about 11 trillion KRW), COVID-19 hindered its progress. This failed M&A drew attention as it clearly reflected the insurance industry's bleak profitability outlook. The increased volatility in financial markets has heightened the risk of damage to insurers' assets and liabilities. Credit rating agencies have already downgraded insurers' credit ratings consecutively. Covea stated, "Considering the unprecedented current situation threatening the global economic outlook and significant uncertainties, we have informed Exor that we will not proceed with the acquisition of PartnerRe as initially planned." WSJ explained the failed PartnerRe sale by saying, "The COVID-19 pandemic has derailed the second-largest corporate deal of the year."

In particular, the withdrawal from PartnerRe's sale negotiations is expected to impact the merger between Exor's subsidiaries Fiat and Peugeot Citro?n (PSA). The two parties announced their merger plans last December, aiming to complete the process within one year and three months. WSJ reported, "Last week, Fiat and Peugeot said they would continue with the merger, but some analysts and investors are losing confidence."

This is not the first time M&A negotiations have collapsed due to COVID-19. Earlier last month, copier and printer manufacturer Xerox halted its hostile takeover bid for IT company HP, citing economic uncertainty, and the U.S. private equity firm Sycamore Partners withdrew its plan to acquire lingerie brand Victoria's Secret.