Key points
- DoorDash gives Instacart holders three ways to be paid
- Why Instacart trades below DoorDash's offer
- When DoorDash could owe Instacart a breakup fee
DoorDash (DASH) agreed to buy Instacart (CART) for $65 a share in cash or a fixed amount of DoorDash stock, a deal valued at about $17 billion. The purchase adds a grocery platform that works with nearly 100,000 stores. The deal could take until the first half of 2028 to close.
DoorDash shares rose 5.0% to $178.00 in premarket trading at 9:21 a.m. Eastern on Thursday, October 29, after closing Wednesday at $169.49. Instacart shares rose 0.6% to $58.79, about 10% below the $65 cash offer.
The $65 price is a 26% premium to Instacart's close on October 22, the last trading day before media reports of a possible deal. Instacart's board approved the agreement unanimously. Stockholders holding about 19% of Instacart's shares have agreed to vote for it.
Instacart holders can choose cash, stock, or both
For each Instacart share, holders can elect $65.00 in cash, 0.3372 DoorDash shares, or $48.75 in cash plus 0.0843 DoorDash shares. At least 75% of the total will be paid in cash, so stock elections will be scaled back if too many holders ask for shares.
At DoorDash's premarket price of $178.00, the all-stock option was worth about $60.02 per Instacart share by our calculation, less than the cash offer. The stock option is worth $65 only if DoorDash trades at about $192.76.
DoorDash plans to pay with cash on hand and new debt. JPMorgan Chase committed to a 364-day bridge loan of up to $13.0 billion, which DoorDash expects to replace before closing with cash and permanent financing such as bonds or term loans. The deal has no financing condition.
When DoorDash could owe Instacart $1.25 billion
The deal needs approval from Instacart shareholders, clearance under the US Hart-Scott-Rodino antitrust law, and regulatory approvals in Canada and Israel. The companies expect it to close at the end of 2027 or in the first half of 2028.
The merger agreement sets a deadline 12 months after signing. It extends automatically by three months up to four times if antitrust approval is the only condition still missing, which gives the deal up to two years.
DoorDash must pay Instacart a $1.25 billion termination fee in cash if the agreement is ended for one of two antitrust reasons. One is a final legal order under antitrust law that blocks the deal and can't be appealed. The other is the final deadline passing while antitrust approval is still missing and every other condition DoorDash needs to close has been met or waived.
Instacart would owe DoorDash $650 million in certain cases, including if it leaves for a better offer. DoorDash's $1.25 billion fee is nearly twice Instacart's and applies under specified antitrust-related termination conditions, putting a set cost on DoorDash if the deal fails for antitrust reasons.
The gap between Instacart's share price and the $65 cash offer is called a merger spread. It reflects the wait until closing and the risk that the deal falls apart. It also reflects the stock alternatives, whose value moves with DoorDash's share price.
DoorDash made several promises it says will hold after closing. Local grocers can work with any delivery platform they choose, with no grocery exclusivity. DoorDash expects to keep the Instacart brand, app, and enterprise technology products. It also said DashPass and Instacart+ members would pay one membership fee instead of two, saving them an estimated $100 million a year.
"Grocery is one of the hardest things to get right online," said DoorDash co-founder and chief executive Tony Xu.
DoorDash's third-quarter revenue beat estimates
DoorDash reported third-quarter results the same morning. Revenue rose 34% to $4.62 billion, above the $4.56 billion analysts expected. Net income rose 91% to $466 million, or $1.06 a share.
Total orders rose 28% to 993 million. Marketplace GOV, the total value of orders placed through DoorDash, rose 36% to $33.9 billion. Excluding Deliveroo, the British delivery company DoorDash acquired, Marketplace GOV grew 23%.
For the fourth quarter, DoorDash expects Marketplace GOV of $35.4 billion to $36.4 billion and adjusted EBITDA of $900 million to $1.1 billion.
Instacart suspends its guidance
Instacart's third-quarter revenue rose 17% to $1.095 billion, and orders rose 10% to 91.4 million. The company suspended its financial guidance, withdrew its long-term targets, and canceled its November 5 earnings call because of the pending deal.
Instacart had also held preliminary talks with Uber (UBER), but those talks were no longer active by October 26. Uber agreed earlier this month to buy catering platform ezCater for $2.3 billion.
"Over the last 14 years, Instacart has transformed online grocery by helping retailers of all sizes compete and grow, and joining forces with DoorDash allows us to do even more," said Instacart chief executive Chris Rogers.
DoorDash discussed the deal on its earnings call Thursday morning.
