Takeaway.com’s merger price looks too low and others may also be interested
Thursday 01 Aug 2019 Author: Martin Gamble

News of a proposed merger between fast food delivery group Just Eat (JE.) and Dutch based competitor Takeaway.com saw the former’s shares trade at a 9% premium to the 731p offer price. This implies the market is confident of a counter bid from someone else.

The merger proposal shouldn’t come as a surprise because activist investor Cat Rock Capital, which has stakes in both businesses, cited a ‘clear rationale’ for the merger in an open letter to management on 11 February.

A lot of investors have shorted Just Eat’s shares, meaning they would profit from a decline in the share price. Closing the short positions will put extra upward pressure on the shares. Roughly 50m shares or 7.34% of the stock are held short, up from 4% since the start of the year, according to shorttracker.com.

Secondly, the deal may flush out a higher, competing offer for the company. Originally a pure-play high margin takeaway platform, focusing on restaurants that do their own delivery, Just Eat has struggled to execute on its plans to build its own delivery system.

Cat Rock was critical of the board’s appointment of previous chief executive Peter Plumb, who it claimed to lack online food delivery experience.

South African group Naspers has been investing in food delivery and has a 22.5% stake in German company Delivery Hero, while Uber and Deliveroo have entered the UK food delivery market, putting pressure on Just Eats’ market position.

Analysts at Liberum believe the regulator might allow an Amazon/Just Eat tie-up in preference to current plans for Amazon to invest in Deliveroo.

The third reason is related to the current deal’s metrics. Following completion, Just Eat shareholders will own 52.2% and Takeaway.com 47.8% of the combined share capital.

Just Eat has a business which is three times larger than its acquirer and made £82.7m of profit last year while Takeaway.com is still loss-making.

However the combined company will be run by Takeaway.com management, and will be incorporated, headquartered and domiciled in Amsterdam, albeit with a listing on the London Stock Exchange.

The implied enterprise value-to-sales at five-times is roughly half the multiple that Takeaway.com paid for the German business of Delivery Hero last year.

This may prompt Just Eat’s shareholders to reject the offer, on the basis that it materially undervalues the company, and encourage management to negotiate a fairer price.

Takeaway.com will have to make a formal offer before 24 August. If it goes ahead, Just Eat shareholders will receive 0.09744 Takeaway.com shares in return for each Just Eat share.

We suggest shareholders sit tight in anticipation of a better offer from Takeaway.com or the outside chance of a counter-offer.

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