To merge or not to merge

THE biggest news this week was the potential sale of foodpanda’s food delivery business in South-east Asia to Grab. This bears echoes of Grab’s acquisition of Uber’s South-east Asia business in 2018.

On paper, it seems like a no-brainer. Grab can cement its place as the region’s leader in food delivery, and foodpanda can finally exit the business here with some potential upside. However, Grab’s acquisition of foodpanda is likely to fall afoul of more than just competition commissions across the region. 

Grab rode on positive investor sentiments to its recent second-quarter results, with its share price rallying up to close on a high of US$3.83 on Sep 1. Fuelling that were narrowing losses and a bright outlook of an even earlier Ebitda breakeven. 

Any acquisition is likely to scupper that timeline, as Grab would have to integrate foodpanda’s business units and take foodpanda’s losses onto their books. With investors now on the lookout for sustainability over growth, such a move is not likely to build confidence among them.

Fellow tech stock Sea’s share price is a warning for others looking to switch gears into growth. Its share price dropped from US$56.90 on Aug 14 to US$40.58 on Aug 15, the day of the earnings call. 

Competition commissions across the region are also likely to negate any monopolistic impact of such an acquisition. For instance, in the Uber acquisition, the Competition and Consumer Commission of Singapore imposed a number of restrictions on Grab, including retaining pre-acquisition pricing algorithms and driver commission rates.

Still, foodpanda may be trying to make the deal palatable to Grab by undertaking layoffs for a more efficient, leaner and agile workforce. This isn’t the first time the food delivery company has conducted layoffs, with earlier rounds in September 2022 and February this year. 

With profitability now key on investors’ minds, cutting costs is probably a good for breaking even, if the deal falls through.

Look below for other stories you may have missed. Have a great week ahead!

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