Uber is reportedly in talks to take over Grubhub, news that sent both companies' stock prices soaring Tuesday. The deal, if it went through, would mark a seismic shift in the food-delivery wars, potentially giving Uber the majority of the U.S. market share, according to analysts. It would also pit two SoftBank-backed companies against each other in a race to control the food delivery nationwide.

The move would consolidate a large chunk of the U.S. delivery market into Uber's pocket, at a time when its main ride-share business is suffering from the pandemic. But the merger wouldn't be without its challenges. Grubhub primarily operates a different business model than Uber's, offering a platform for restaurants that do their own delivery. The merger would also have to fight off regulatory challenges, and potentially even counterbids from competitors.

Consolidation in the space has been expected for some time, as Grubhub has reportedly been shopping around for a buyer since January. But it was a question of who would end up teaming up — and when. If Uber had merged with its other main competitor, DoorDash, it would mean that Uber would've taken out an aggressive spender. But DoorDash, most recently valued at nearly $13 billion, may have been too costly for Uber to take on — indeed, talks last year reportedly fell through. A merger with Grubhub, whose market cap was $4.3 billion before the deal was reported, instead would increase Uber's market share, particularly in lucrative cities like New York, while not necessarily breaking the bank. It would also bring on a new inventory of restaurants that do their own deliveries instead of relying on other couriers, as many of the restaurants on Uber Eats do.

While Grubhub used to control the U.S. food market, SoftBank-backed DoorDash took the lead in 2019. Together, a combined Grubhub and Uber Eats could now control around 55% of the market share, according to analysts at Wedbush. DoorDash would have 35%, followed by Postmates, which has pursued more of a regional dominance strategy in cities like Los Angeles. Both Postmates and DoorDash have confidentially filed to go public, although the window for an IPO may be closed for some time, given the pandemic. Wedbush analysts also said in a note shared with Protocol that this merger might not go ahead without a fight, writing that they "wouldn't rule out a bidding war with DoorDash … as it, too, will look to whether it makes sense to purchase market dominance."

The move could also spark more mergers in the food delivery market, PitchBook analyst Asad Hussain said. "The wave of food delivery consolidation in North America is finally here, and we expect it to continue in the coming months," he said. "We believe companies such as DoorDash and Postmates could be likely merger candidates going forward."

Grubhub did not comment on the takeover reports, but said in a statement that "consolidation could make sense in our industry and, like any responsible company, we are always looking at value-enhancing opportunities." Uber told Protocol that it didn't comment on M&A rumors or speculation, and DoorDash also declined to comment. Postmates wasn't immediately available for comment.

That market dominance also invites the specter of regulation. It's hard to see how reduced competition wouldn't lead to higher prices, which could lead regulators — already examining tech acquisitions for anticompetitive behavior — to intervene. "There's reasonable questions as to whether or not they can get a deal done," D.A. Davidson analyst Tom White told Bloomberg News. "I think Uber's got a bit of a target on their back, if you will, in the eyes of regulators."

It's already attracting notice. U.S. Rep. David Cicilline, the top Democrat on the House Judiciary's antitrust subcommittee, said in a statement that the deal "underscores" the need for a merger moratorium. Though Cicilline previously proposed including a merger moratorium in the upcoming congressional stimulus package, the bill unveiled by Democrats on Tuesday did not include any pause on M&A activity. "Uber is a notoriously predatory company that has long denied its drivers a living wage. Its attempt to acquire Grubhub — which has a history of exploiting local restaurants through deceptive tactics and extortionate fees — marks a new low in pandemic profiteering," Cicilline said. "We cannot allow these corporations to monopolize food delivery, especially amid a crisis that is rendering American families and local restaurants more dependent than ever on these very services."

Grubhub, founded in 2004, has been in the food delivery game for a lot longer than anyone else. It built a profitable business with its marketplace model, which aggregates restaurants that offer delivery services into a large platform. For years, the company resisted doing the deliveries itself. But its profitable model came under threat in recent years, thanks to an influx of new VC-backed competition like DoorDash, Postmates, Caviar and Uber Eats. SoftBank, which has invested around $7.6 billion in Uber and an estimated $600 million to $900 million in DoorDash, has been a major driver of the trend.

Those companies, which have their own delivery drivers pick up and drop off food, have sparked a price war in the industry. They forced Grubhub to enter the logistics space, despite executives telling investors that it didn't believe "that a company can generate significant profits on just the logistics component of the business."

Last October, Grubhub executives said "online diners are becoming more promiscuous," saying that "the easy wins in the market are disappearing a little more quickly than we thought." Things were set to ease up a little this year, with firms like Uber and Postmates focused on improving their margins. But the pandemic threw a spanner in the works by reigniting the price war. That means that the significant uplift in orders isn't translating into a meaningful earnings improvement.

Deutsche Bank analyst Kunal Madhukar said Monday that Grubhub is likely discounting "in the mid-to-high-single-digit range across all delivery orders." In the first quarter of 2019, Grubhub made a profit of almost $7 million. This year, the first quarter led to a $33.4 million loss. With Uber knocking on the door, now might be a good time to call it a day.

Update (4:50pm): This post has been updated with comments from U.S. congressman David Cicilline.