Last Thursday (22 Feb), Grab released its 2023 Q4 and FY earnings, recording its first quarterly profit of US$11 million – benefiting from an “accounting accrual reversal”. 

Grab said it would repay term loans and initiate Southeast Asia tech’s first share buyback – for which Grab could use up to US$1 billion cash. With almost US$6 billion of net cash liquidity, Grab could well afford it. 

Collasped deal

US$1 billion is also close to the €1 billion price tag for Foodpanda that German media quoted, when reporting potential acquisition talks between the two companies last September. 

A day before Grab’s earnings release last week, Foodpanda parent Delivery Hero announced that acquisition talks for Foodpanda in Southeast Asia had collapsed. In Grab’s earnings call, COO Alex Hungate confirmed that Grab was not pursuing that acquisition. 

So the deal essentially collapsed. 

Eliminating competition is obviously beneficial from a business point of view. So why did Grab give it up? 

The “right price” 

Some have pointed out that the post merger acquisition could be very complicated – look at Alibaba’s acquisition of Lazada or the Gojek-Tokopedia merger. 

However, a potential Grab acquisition of Foodpanda would be different from the two examples above. Grab does not need Foodpanda for growth or expansion – in fact, it is very likely that the only rational of such an acquisition is to eliminate competition

In that scenario, Grab would acquire Foodpanda, strip off which assets that are valuable, and retire the brand. It did so with Uber’s Southeast Asia business, same as what Didi did with Uber China or earlier rival Kuaidi. 

Therefore the calculation becomes – for how much it is willing to pay for such a move. Momentum Works have been monitoring food delivery market share for the past four years – and Grab has been consistently expanding at the expense of Foodpanda in all the major markets both are in. 

With more cash, expanding market share, and better team morale, Grab management is probably confident that it could score the definite victory through natural course of competition, rather than an acquisition. 

The cost of acquisition is more than the consideration paid to Delivery Hero, but all the integration and potential hurdles by regulators. With all these considered, the amount of money Grab is willing to pay for Foodpanda (the “right price”) is probably far below the €1 billion initially reported. 

What’s next? 

Last year, Meituan also revealed to analysts that it would not buy Foodpanda after careful considerations, because it could not foresee profitability for the business. 

There is probably another consideration: who can they send to manage a region that is 6-8 times more complicated (6-8 markets in SEA, compared to single market in China) but only contributes less than 2% of Meituan’s total food delivery GMV? 

What should Delivery Hero do in this instance? Two options: 

  1. Shut down Foodpanda, and leave Southeast Asia; 
  2. Try to make Foodpanda self sustainable; 

The latter seems to be what the management vows to do. Anyway, there are bigger worries than Southeast Asia: Meituan’s potential incursion into the Middle East (the Gulf is a less complicated but denser and more affluent set of markets compared to Southeast Asia); as well as the competition in South Korea. 

Over the next few years, macro environments, competitive landscape and calculations of management might evolve as well. Collapsed deals might be revisited – maybe TikTok would be willing to buy a food delivery player at some point of time? 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].