Food delivery startup Delivery Hero sells stake in rival Deliveroo, but pays the price in market value

German food delivery giant Delivery Hero on Monday ditched rival Deliveroo but now paying the price in market value. Shares of Delivery Hero took a nosedive to an all-time low on Tuesday following its decision to offload its minority stake in rival Deliveroo.

The news came after Delivery Hero’s announcement late Monday that it would sell 68 million Class A ordinary shares in Deliveroo, one of the UK’s major food delivery services, for £1.13 per share ($1.43), marking a 7% discount from Deliveroo’s Monday closing price of £1.22, according to a report from CNBC.

As we reported three years ago, Delivery Hero acquired a 5.09% stake in Deliveroo as it sought opportunities to expand its footprint in Europe. The deal valued the British firm at 335 million euros (around 284 million pounds).

The sale of the stake is expected to fetch approximately £76.8 million for Delivery Hero. This amount represents less than a third of the original purchase price of the shares in 2021, according to Reuters. Delivery Hero stated that it is selling its stake in Deliveroo to reallocate its cash more effectively.

In an earlier trading update this month, Deliveroo mentioned that its annual earnings for 2023 would slightly surpass the previously guided range of £60 to £80 million ($76 to $101 million).

Deliveroo also forecasted a 3% increase in the value of orders on its platform, aligning with its earlier guidance. In 2023, Deliveroo’s shares had a respectable performance, climbing over 30%, largely due to the recovery in the technology sector.

Delivery Hero has been actively acquiring companies in recent years to maintain its position as the leading global food delivery platform. Established in 2011 by CJ Foo, Claude Ritter, David Bailey, Kolja Hebenstreit, Markus Fuhrmann, Nikita Fahrenholz, Niklas Ostberg, and Tracy Richardson, Delivery Hero, headquartered in Berlin, Germany, operates a network of online food ordering sites with over 100 restaurant partners across 21 countries, boasting more than 73,000 restaurant partners.

Originally backed by Amazon, Deliveroo, based in London, England, was founded in 2013 by Will Shu and Greg Orlowski. The company generates revenue by charging restaurants a commission fee and customers a fee per order.

Presently, Deliveroo operates in 500+ towns and cities across 14 markets, including Australia, Belgium, France, Germany, Hong Kong, Italy, Ireland, Netherlands, Singapore, Spain, Taiwan, the United Arab Emirates, Kuwait, and the United Kingdom. The transaction was spearheaded by Richard Bull, a London private equity partner at Proskauer, with support from associates Andrew Houghton and Darpit Mehta.