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May 29, 2020

Uber-Grubhub deal hinges on breakup fee after narrowing price gap

The logo for the Grubhub Inc. application is displayed on an Apple Inc. laptop computer in an arranged photograph taken in the Brooklyn borough of New York, U.S., on Friday, April 10, 2020. Grubhub, the parent of food delivery app Seamless, said last month it was deferring fees for independent restaurants using the service in response to the coronavirus pandemic. Photographer: Gabby Jones/Bloomberg

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Uber Technologies Inc. and Grubhub Inc. are haggling over a breakup fee after nearing an agreement on a merger price, according to people familiar with the matter.

Grubhub wants Uber to agree to pay it a cash sum should U.S. regulators block a proposed deal to combine two of the country’s largest food-delivery operators, said the people, who asked to not be identified because the matter is private.

Uber is reluctant to concede to any sizable payment -- known as a reverse breakup fee -- because of the takeover price it is offering, the people said.

The tentative terms of the all-stock deal would value Grubhub at a premium to its closing share price on Thursday, according to the people.

Grubhub’s shares fell 4.6 per cent to close at US$52.83 in New York trading Thursday, giving the company a market value of about US$4.9 billion. Uber dropped 2.1 per cent to close at US$34.15, giving it a market value of about US$59 billion.

While the coronavirus lockdown has created high demand for takeaway meals and those that deliver them, its damage to the wider economy has also increased the chances of mergers and acquisitions unraveling.

The back-and-forth between Uber and Grubhub underscores how the issue of termination fees -- in which one or both parties pay a charge if a deal falls through -- has become a contentious one during the pandemic.

Uber, the ride-hailing company that also runs the food delivery service Uber Eats, made its offer for Grubhub earlier in May, people familiar with the matter said at the time.

The potential takeover quickly drew scrutiny from Washington officials already concerned about the fees such companies charge restaurants and their treatment of workers.

Grubhub was founded in 2004 and is the oldest of the major food delivery companies in the U.S. In recent years, competition from DoorDash Inc. and Uber has squeezed its profit margins and the coronavirus crisis is adding more pressure.

Grubhub withdrew its 2020 financial guidance in April. Uber has also pulled its 2020 forecast amid the virus’s spread.

A representative for Uber declined to comment. A spokesperson for Grubhub didn’t immediately respond to a request for comment.