Zomato eyes UberEats business in India to strengthen footprint ahead of major rivals

INDIA – Zomato is said to have entered negotiations with UberEats seeking to acquire its online food delivery business in India, in a deal valued at about US$500 million, reports The Times of India.

While the final size of the deal may change, the current round of negotiations involves a stock deal for the business. Uber has also sent feelers to rival Swiggy most recently, but talks are yet to take shape.

Swiggy and UberEats advanced discussions earlier this year did not go through because of differences in valuation besides taxation and legal issues. Amazon India was earlier cited as a major contestant.

“The talks with Zomato are now progressing towards a term-sheet and discussions are more realistic this time around,” according to three sources directly briefed on the matter.

UberEats had earlier unveiled plans of exiting the India market, which has been a drag on the company’s global margins with low returns on investments.

In a recent call to analyst, Uber said it will be focusing to grow its food delivery business in markets where it can be the first or second player.

UberEats has already shut its business in South Korea siting intense competition in the market from its biggest rival, Woowa Bros.’ food delivery service Baedal Minjok – which enjoys a 75% market share.

In India, UberEats is a distant third in the food delivery market with 250,000-300,000 orders a day in the country, as compared to 2-2.5 million by Swiggy and Zomato, both of whom have claimed leadership.

UberEats has projected a loss of Rs 1,451 crore (about US$200 million) for 2020 in India, according to the company’s filings.

The acquisition talks also come at a time when the Ant Financial-backed Zomato is in the process of raising between US$500 to 600 million in a fresh funding round to fuel its food delivery and dining out operations, with indications being that Uber may also participate in the funding round.

The funding round will value Zomato at over US$3 billion, and a potential share-swap may also happen using that benchmark.

The deal is attractive for Zomato as it will help it strengthen presence in the cities in South India, which has till now been a strong area for Swiggy.

It will also help it get an edge in terms of market share in its battle with Swiggy and get a new strategic investor on board.

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