Uber Technologies (UBER) has announced that it proposes to offer $750 million principal amount of Senior Notes due 2025, as the company reportedly gears up its takeover talks with food delivery service GrubHub (GRUB).
The notes are being offered only to qualified institutional buyers.
“Uber intends to use the net proceeds from this offering primarily for working capital and other general corporate purposes, which may include potential acquisitions and strategic transactions” the company revealed in its announcement.
According to CNBC’s David Faber, Uber has already rejected an all-stock proposal to Grubhub for 2.15 Uber shares per share of GrubHub. He reports that the two companies have been discussing a potential deal for about a year but have so far failed to agree on a price.
In a statement to CNBC, Uber wrote: “We are constantly looking at ways to provide more value to our customers, across all of the businesses we operate.” The company added: “We have shown ourselves to be disciplined with capital and we do not respond to speculative M&A premiums.”
Overall, Wall Street analysts have a bullish outlook on Uber stock with 26 Buys, 3 Holds and 1 Sell- giving UBER its Strong Buy consensus. The $39.59 average price target indicates 22% upside potential lies ahead. Shares are currently trading up 9% on a year-to-date basis. (See Uber stock analysis on TipRanks).
A takeover offer of GRUB is consistent with his bullish thesis on UBER, says Needham analyst Brad Erickson. “Relative to Eats’ losses of roughly $1.2 billion last year, we think the company could eliminate as much as $500M of those through acquisition” commented the analyst.
Additionally, with the company having exited India plus the more recent additional 7 unprofitable markets announced last week, he believes investors would further recognize a dramatically clearer picture towards food delivery profitability coming out of any presumptive deal, if it were to occur.
Erickson remains positive on Uber, reiterating a buy rating and $42 price target (30% upside potential) on May 12.