DoorDash Eyes UK’s Deliveroo in $3.4 Billion Takeover Bid
San Francisco-based DoorDash is in talks to acquire Deliveroo, signaling further consolidation in the global food delivery market.
DoorDash, the dominant food delivery company in the United States, has made an indicative £2.7 billion ($3.4 billion) bid for Deliveroo, a UK-based competitor.The potential acquisition underscores the ongoing consolidation within the increasingly competitive food delivery sector, both in the U.S. and abroad. For American consumers and investors, this move raises questions about DoorDash’s global ambitions, the future of competition, and the potential impact on delivery fees and restaurant partnerships.
Deliveroo’s Rocky Road to Potential Acquisition
Founded in 2013 by Will Shu, Deliveroo went public in London in 2021 with an initial valuation of £7.6 billion. However, its stock market debut was less than stellar. shares plummeted by more than a quarter on the frist day of trading, a “debacle” that set the tone for a challenging few years.
competition from Uber Eats, which launched in the UK in 2016, and Amazon’s entry into grocery delivery intensified the pressure. Deliveroo’s stock closed at £1.47 on friday, a notable drop from its initial listing price of £3.90. Despite these challenges, Deliveroo operates in nine countries and reported its “first full annual profit” in its 2024 results last month.
DoorDash’s Expansion Strategy
DoorDash,co-founded in 2013 by Tony Xu,has grown into a major player in the U.S. food delivery landscape and is now expanding globally. The company operates in over 30 countries and reported $10.7 billion in revenue last year. A DoorDash spokesperson declined to comment on the potential acquisition. However, a person familiar with the deal revealed that DoorDash first approached Deliveroo with a similar valuation last summer.Deliveroo stated that its board “would be minded to recommend” DoorDash’s offer of £1.80 a share if a firm approach were made.
The offer represents a premium of over 20% to Deliveroo’s closing price on Friday. Under UK takeover rules, DoorDash has until May 23 to make a firm offer.
Antitrust Concerns and Market Overlap
One potential hurdle for the deal is regulatory approval. However, because “DoorDash operates in the US, Canada, Australia and New Zealand and does not overlap with any of Deliveroo’s markets,” the companies are optimistic that antitrust regulators will not block the deal. Both companies have also been “expanding into grocery and retail delivery, while developing their advertising businesses to boost profitability.”
The Argument Against Consolidation
while DoorDash and Deliveroo executives express optimism about regulatory approval, some industry analysts and consumer advocates worry about the increasing consolidation in the food delivery market. A smaller number of large players could lead to higher fees for consumers, reduced commissions for restaurants, and less favorable conditions for delivery drivers. For example, in markets where DoorDash and Uber Eats have a duopoly, restaurants frequently enough complain about the high commissions thay are forced to pay, sometimes as much as 30% per order, substantially impacting their profitability. Further consolidation could exacerbate this issue.
Recent Developments
Since the initial declaration, analysts at Wedbush Securities have given mixed reactions. While acknowledging the strategic rationale of the deal, they cautioned that integrating Deliveroo’s operations, technology, and workforce could present significant challenges. They downgraded DoorDash (DASH) stock from “Outperform” to “neutral,” citing integration risks and potential regulatory scrutiny.
FAQ: DoorDash and Deliveroo Potential Acquisition
| Question | Answer |
|---|---|
| What does this mean for DoorDash customers in the US? | Initially,likely nothing. Deliveroo operates in different markets. Though, the acquisition signals DoorDash’s ambition to expand globally, potentially bringing new technologies or services to the U.S. market in the future. |
| Will this affect delivery fees? | Potentially, yes. Consolidation in the market could lead to less competition and, consequently, higher delivery fees in the long run. However, this is not guaranteed. |
| Could this merger be blocked? | It’s possible, but unlikely.Since DoorDash and Deliveroo operate in different geographical markets, there is minimal overlap to raise antitrust concerns. However, regulators will likely scrutinize the deal. |
| What happens to Deliveroo if the deal goes through? | Deliveroo would likely become a subsidiary of DoorDash. Its branding and operations could be integrated into DoorDash, or it may continue to operate as a separate entity, at least initially. |
| What’s next for Will Shu? | Deliveroo denied in February that Shu would step down as CEO, stating that he remained “relentlessly focused on the long-term future” of the company. What role he’d assume in Doordash is not known. |
