Uber sells its food delivery biz for 10% stake in Zomato

Bengaluru: Uber has reached an agreement to sells its India food delivery business to Zomato in an all-stock

deal

by diluting a 9.99% stake to the San Francisco-based ride-hailing giant, the two companies said in a statement. The deal size is being pegged at around $350 million.

With this, online food delivery becomes a two-way

battle

between Zomato and Swiggy as ride-hailing players pull back from the space. Zomato will also pay Uber $35 million as reimbursement for goods & services tax paid.

Uber is not expected to make an investment in Zomato as part of its ongoing round immediately, nor will it be getting a board seat.

Under the terms of the deal, the UberEats application will not be active in India and users will be directed to Zomato when they log in. Zomato will also get about 70,000 active delivery partners on the UberEats network, taking the total count to 225,000. About 200

UberEats India

employees will be impacted by this deal, as Zomato is not absorbing them. While some employees will be absorbed in Uber's ride-hailing business, others are likely to be asked to go, said one of the sources briefed on the deal.

But UberEats also comes with significant operational losses, pegged at $244 million for the first nine months of 2019 on revenues of just $28 million, according to a filing made by Uber, which has been facing investor pressure since its listing to show a path to profitability.

"India remains an exceptionally important market to Uber and we will continue to invest in growing our local Rides business, which is already the clear category leader," said Uber CEO Dara Khosrowshahi in a statement.

The dealwill help the Gurgaon-based company increase market share, with a RedSeer report pegging the combined UberEats and Zomato market share at 52% of gross order volume as compared to Swiggy's 43% for December 2019.

"We are proud to have pioneered restaurant discovery and to have created a leading food delivery business across more than 500 cities in India. This acquisition significantly strengthens our position in the category," said Zomato founder and CEO Deepinder Goyal in a statement.