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Investors cheered Uber’s $2.65 billion acquisition of Postmates Monday, bidding up the buyer’s shares by 6%. That rise was an endorsement of the deal, perhaps, but also a reflection that Wall Street values cost cutting. The company said it can take out $200 million in costs once the deal closes next year.
There’s the expression “horses for courses,” and Dara Khosrowshahi, the CEO of Uber, is a dealmaking horse on an industry-consolidation course. He cut his teeth at Allen & Co. and helped build Expedia into an M&A-fueled collection of online travel brands. Now he is running the same playbook at Uber. Its food-delivery business is the only pandemic-resistant line it has, so after failing to buy Grubhub, he’s adding Postmates to the stable. Uber is also in the process of buying Cornershop, a Latin American grocery delivery business.
Postmates was rumored to be going public itself, but that was far from certain. Indeed, Uber said it will provide “bridge financing” to Postmates until the deal is finalized. This means Postmates needs to raise new money to stay afloat. In other words, Uber is marrying a money-losing business, Uber Eats, with another money-losing business—and still won’t make cash while facing fierce competition. As Breakingviews put it, “What this [deal] won’t do, therefore, is change the woeful economics of food delivery.”
The near-term future is bleak for Uber. Mark Mahaney, an analyst with RBC, notes that Uber said second-quarter ride-hailing bookings declined 75% from the year-earlier period, and that even more recently, even as various parts of the world emerged from lockdowns, its year-over-year declines were 60%. Mahaney says Uber’s updates clearly indicate the “recovery will be slow and sluggish, with ongoing risks related to the pace of re-openings.”
What’s certain: There will be more deals.