Delivery Hero in $1.25 billion deal with Uber for foodpanda Taiwan sale, investment

(Reuters) -Uber announced on Tuesday a $1.25 billion deal to take over Delivery Hero's foodpanda business in Taiwan and buy new shares in the German firm in a move that would boost liquidity of the delivery specialist grappling with rising competition in Asia.

Asia has become Delivery Hero's biggest market after its $4 billion deal in South Korea in 2019 but the company has been trying to divest some of its assets in the region to improve profitability.

While food delivery services in Asia have largely rebounded from a slowdown following the pandemic boom, many firms are now grappling with thin margins as they spend heavily in offering discounts and promotions to retain consumers who have become wary of rising inflation and cost of living.

"We need to focus our resources on other parts of our global footprint, where we feel we can have the largest impact for customers, vendors and riders," Niklas Ostberg, CEO and co-founder of Delivery Hero, said in a joint statement.

Under the deal, Uber will take over the foodpanda business in Taiwan for $900 million in cash and purchase $300 million in newly issued shares of Delivery Hero at 33 euros each, a 30% premium to its closing share price on Monday.

The U.S. company expects the acquisition to contribute at least $150 million annually to the adjusted core profit of its delivery business within a year of the deal's closing, which is likely in the first half of 2025.

Online food delivery platforms represent a small fraction of Taiwan's competitive food delivery market but the foodpanda operations in the island were break-even in terms of adjusted core earnings in the last 12 months ended March 31, the companies said.

The business processed transactions worth 1.6 billion euros ($1.73 billion) during that period.

REGULATORY RISK

Delivery Hero had been also looking to sell its foodpanda business in selected Southeast Asian markets as part of its restructuring. It said in February that it had terminated talks for the potential sale of those operations.

"With a better balance sheet and partnership with Uber, Delivery Hero's competitive situation has materially improved with restored ability to undergo marketing initiatives if required," JPMorgan analysts said in a client note.

But the analysts warned that Delivery Hero and Uber's combined 90% market share in the Taiwanese food delivery business could spark "regulatory risk."

Singapore's competition watchdog said last month it had looked into the likelihood of a potential deal between Grab Holdings and Delivery Hero, raising worries about competition in the food delivery market. But it closed the case after the talks had collapsed.

Delivery Hero said last month it would still look at any potential deal.

Grab and foodpanda control about 91% of Singapore's $2.5 billion food delivery market, according to a report by research firm Momentum Works, with Grab alone having a 63% market share.

($1 = 0.9271 euros)

(Reporting by Chandni Shah and Zaheer Kachwala in Bengaluru; Writing by Miyoung Kim; Editing by Nivedita Bhattacharjee and Subhranshu Sahu)