By Pushkala Aripaka and Anuja Bharat Mistry
(Reuters) -U.S. meal delivery firm DoorDash (NASDAQ:DASH) will buy Deliveroo (OTC:DROOF) in a deal valuing the British rival at about 2.9 billion pounds ($3.85 billion), the companies said, banking on a bigger reach and local expertise to take on competition.
Separately on Tuesday, DoorDash said it would buy SevenRooms, a New York City-based hospitality-related software company, for about $1.2 billion.
The company’s spending spree comes at a time when similar businesses have struggled to add scale with consumers being mindful about spending on pricey food delivery services.
Both the companies rekindled talks last month after DoorDash approached Deliveroo with a 180 pence per share proposal, which was confirmed on Tuesday as the final offer, sending Deliveroo shares up about 2%.
Still, at Tuesday’s high of 176.40 pence, the stock was trading under the offer price. Deliveroo’s shares have struggled since their debut when they were sold at 390 pence in 2021, a time when meal-delivery services were boosted by the pandemic.
“There were too many companies (in the food delivery market) chasing the same opportunity and that’s unsustainable,” Russ Mould, investment director at AJ Bell, said.
“Only the strongest will survive and they’re the ones picking up smaller rivals who realize their future is best part of a bigger entity, and not going it alone.”
The acquisition will help DoorDash grow its market share in Europe, competing against Just Eat and Uber (NYSE:UBER) Eats, as it adds Deliveroo’s largest market, Britain and Ireland to its roster, along with others.
“In addition to having the foundation in which we can add scale to our investments in Europe, we have the possibility to introduce new products to the market,” DoorDash CEO Tony Xu said on a post-earnings call.
In 2024, Deliveroo and DoorDash had orders worth about a combined $90 billion, the companies said, with roughly 7 million and 42 million monthly active users, respectively.
“Following careful consideration, the Deliveroo Independent Committee has unanimously decided to recommend this offer,” Deliveroo Chair Claudia Arney said.
DoorDash’s Nasdaq-listed shares fell about 8.5% after the company also forecast second-quarter core profit largely below estimates.
The company expects adjusted earnings before interest, tax, depreciation and amortization to be between $600 million and $650 million for the second quarter, compared with the average analyst estimate of $627 million, according to veri compiled by LSEG.
DoorDash reiterated on Tuesday that consumer demand remained strong, but added that it was “conscious of the potential for changes in consumer demand”.
Uber, which has been seeing strong growth in its food delivery unit, said on Tuesday it would acquire an 85% stake in Turkish e-commerce firm Trendyol’s online food delivery business for about $700 million.
INVESTOR SUPPORT
San Francisco-based DoorDash, which provides a restaurant delivery service through a mobile application, said it would not increase its offer, but reserved a right to do so if a third party emerged with a competing offer for Deliveroo.
Deliveroo said it has received undertakings of support from investors holding about 15.4% of shares, including from CEO and founder Will Shu, and investment firms Greenoaks and DST Küresel.
For the deal to go through, Deliveroo will need approval of at least 75% of shareholders.
Panmure Liberum analysts highlighted “the notable absence” of Deliveroo’s largest shareholder, Amazon (NASDAQ:AMZN), from this list, adding that they still see Amazon as the most likely counter bidder.
Amazon, which has a 14.38% stake in Deliveroo, declined to comment.
The deal is not expected to face regulatory hurdles, as DoorDash has virtually no presence in Deliveroo’s 10 markets, a source told Reuters last month.
Shu, who co-founded Deliveroo in 2013 with his childhood friend Greg Orlowski, would receive about 172.4 million pounds for his 6.4% stake, the third largest.
Previous negotiations with DoorDash ended in disagreement over Deliveroo’s valuation, Reuters reported last year.
($1 = 0.7526 pounds)
