That happened to my nephew...a coyote grabbed a puppy through a hole in the fence and took off with it. My nephew jumped over the fence and started chasing the coyote through some empty fields. The coyote realized he was being chased and was losing the race -- my nephew runs really fast, and that puppy was screaming!! The coyote finally dropped the puppy. They took it to the vet and it had a couple of tooth punctures that could be fixed. Nothing bad happened. The puppy was luckily fine.
I am so sorry your grandparents lost their little dog. That is so sad for them. It must have been pretty traumatic to actually see it happen.