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Uber buys Postmates for $2.65 billion, getting deeper into deliveries

The ride-hailing company says the move will help expand its efforts to deliver groceries, essentials and other goods.

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Uber's rides business fell by 80% in mid-April, while it's Uber Eats delivery business grew by 100%.

Angela Lang/CNET

Uber has agreed to acquire delivery service Postmates in a $2.65 billion all-stock deal. The ride-hailing company on Monday said the acquisition, which was reported earlier by Bloomberg, will boost its growing efforts in the delivery of groceries, essentials and other goods.  

"Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery," Uber CEO Dara Khosrowshahi said in a statement. "They can be a hugely important part of local commerce and communities, all the more important during crises like COVID-19."

With many restaurants' dining rooms closed during the coronavirus pandemic, people have looked to delivery and pickup services like Postmates, Uber Eats, DoorDash and Grubhub for their meals. A survey by DoorDash in March found that 56% of 1,000 customers said their takeout consumption had increased during shelter-in-place orders. Khosrowshahi said Monday that Uber Eats orders are up more than 100% since the same period last year.

But at the same time, Uber's rides business has suffered during the pandemic with its ride volume down by as much as 80% in mid-April. After laying off thousands of employees in May, the company said it was going to shutter several of its side projects and focus more on just delivery and rides. It shook up management by promoting Andrew Macdonald, who was head of global rides, to lead "mobility," and Pierre-Dimitri Gore-Coty, who was head of Uber Eats, to lead "delivery." It also introduced two new delivery options, Uber Direct and Uber Connect

Uber said the acquisition of Postmates would be "highly complementary" to Uber Eats. Postmates works with more small- and medium-sized shops and its customers are more varied than those who typically use Uber Eats, the company said. Postmates also delivers a variety of items -- calling itself a "whatever-you-can-think-of" delivery app-- rather than just restaurant food. Khosrowshahi said Monday that he expects the deal to generate a profit within a couple of years.

Daniel Ives, an industry analyst with Wedbush Securities, said Monday that Uber was likely feeling pressure to scale its business to keep a competitive edge against other delivery services. 

"Postmates, which is the clear #4 player behind DoorDash, Uber Eats, and Grubhub, would be both a defensive and offensive acquisition in the food delivery space for Uber at a time with its core ride-sharing business seeing massive headwinds in this COVID-19 pandemic," Ives said.

Earlier this year, Uber was said to be looking to acquire Grubhub, but reportedly exited merger talks amid antitrust concerns. Grubhub now plans to merge with the Netherlands-based food delivery service Just Eat Takeaway in a deal reportedly worth $7.3 billion.

Open Markets Institute, a nonprofit watchdog, said Monday that federal authorities should block Uber's acquisition of Postmates. It said the buyout would lead to Uber having 37% of the food delivery market and could "consolidate the predatory delivery app market from just four dominant players to three, threatening vulnerable restaurants and gig workers already devastated by the pandemic."

As part of the acquisition deal, Uber will incorporate Postmates deliveries into the Uber Eats portion of its app. Postmates will also continue to operate its own app. Uber's takeover of Postmates is expected to close in the first quarter of 2021.

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