Shares of Deliveroo rise as German rival takes new stake in the business

Food delivery company Deliveroo on Monday announced that German rival Delivery Hero has taken a 5.09% stake in the business, making the company's shares to climb over 10%.

London-based Deliveroo and Berlin-based Delivery Hero are considered the two largest food companies in Europe. They are strong rivals and have been fighting for market dominance across the continent for nearly a decade. Delivery Hero competes with Deliveroo through its Talabat in Middle East, and Foodpanda in Hong Kong and Singapore.

Delivery Hero is larger than Deliveroo by market cap of around 30 billion euros ($35 billion). It holds minority stakes in smaller rival companies including Rappi, Zomato, Glovo, and Just Eat Takeaway. The company, however, doesn't operate in Britain, which is Deliveroo's largest market, after it sold its Hungryhouse business to Just Eat in 2016, but now owns a 7.4% stake in Just Eat Takeaway.com.

Deliveroo's stock jumped from £3.36 ($4.66) per share to £3.60 per share in early trading on the London Stock Exchange. The stock reached its highest since when began trading in March this year. However, shares of Delivery Hero remained the same on the Frankfurt Stock Exchange.

Deliveroo's market value is currently around £8 billion which means that Delivery Hero's investment was roughly about £400 million. Although the food delivery company declined to respond to questions about the exact size of the the investment. Delivery Hero also declined to respond immediately to CNBC's request for comment.

However, in a note to investors, Deliveroo said it was sent a notification of "major holdings in the company's shares from Delivery Hero after market close on 6 August 2021."

In 2018, Deliveroo raised $575 million in a funding round led by Amazon. By the following year, the company made a loss of £223.7 million on revenues of £4.1 billion, significantly less than the £317 million on revenues of £2.5 billion it incurred in 2019.

Since the emergence of the Covid19 pandemic, online food delivery platforms like Deliveroo, Delivery Hero, and Uber Eats have benefited from a surge in demand for their services, especially during the lockdown. Some analysts question the effectiveness of these businesses as restaurants continue to reopen.