Deliveroo takeaway ‘faces probe’
UBER would face close scrutiny from the competition watchdog if it seals a £1.5bn deal for food delivery operator Deliveroo, City analysts warned last night.
The Silicon Valley minicab giant is in talks with Deliveroo over a possible takeover of one of Britain’s most successful technology start-ups.
Chris Beauchamp, chief market analyst at IG Group, warned that the combination could be delayed by a competition inquiry and said regulators would be likely to take a keen interest.
Uber and Deliveroo both operate services that use couriers on pedal bikes, motorbikes or in cars to pick up food from restaurants that do not otherwise offer delivery services. A tie-up would cut the number of players in the UK market from three to two, with Just Eat the only remaining large-scale competitor.
Shares in Just Eat fell by as much as 9pc yesterday after news of the possible merger while shares in European rivals Delivery Hero and Takeaway. com also fell 2pc.
“There will be questions if you take it down from three big players to two big players,” Mr Beauchamp said. “How does that affect pricing? The Competition and Markets Authority would be likely to look into it.”
Legal sources agreed any merger could prompt an investigation by the CMA. A similar deal between rival services Just Eat and Hungryhouse was investigated in 2017 over concerns the deal could force restaurants to accept contracts with worse delivery terms.
However, the merger was approved, with the CMA citing the growing competition of services such as Uber’s delivery service UBEREATS and Deliveroo.
The CMA declined to comment yesterday. If it were to intervene on Uber’s acquisition of Deliveroo, it would consult with restaurants, competitors and customers.
Paul Hickman, an analyst at Edison Investment Research, said a merger could create a “killer brand.” He cited Deliveroo’s strong brand in the UK and Uber’s increased distribution.
However, Mr Hickman said he thought it was unlikely the deal would cause concern to UK regulators due to the small overall share both companies have of the food delivery market.
Last night there were also questions over the role of Fidelity, the US fund management giant, in pushing the deal. Deliveroo is thought to be worth around $2bn (£1.5bn), and the business has raised more than £650m in funding from investors including Fidelity and T Rowe Price.
But Uber has also raised money from Fidelity, raising concerns the US investment fund could be backing a deal.
It would be another example of one of the UK’S leading technology companies selling to a larger US business. In 2014, Google acquired London-headquartered artificial intelligence company Deepmind for $400m. Other recent sales to the US include Swiftkey being acquired by Microsoft for $250m in 2016, and British artificial intelligence business Magic Pony’s sale to Twitter later on in that year for $150m.
Bloomberg reported the talks may fail because Deliveroo wished to remain independent following the deal and was seeking a valuation higher than its reported market value.