September 3, 2019 / 1:51 PM / 19 days ago

Breakingviews - Just Eat M&A bump may have a long delivery time

Signage for Just Eat is seen on the window of a restaurant in London, Britain, August 5, 2019.

LONDON (Reuters Breakingviews) - Good food is worth waiting for, as Just Eat shareholders may find out. A top-10 investor in the UK food-delivery group will vote against peer Takeaway.com’s offer, which was agreed by both boards in August and is now worth about 5.1 billion pounds. The hungry Dutch bidder’s Chief Executive Jitse Groen may need to up his price - but not for a month or so.

Eminence Capital, a U.S. hedge fund and 4.4% shareholder in Just Eat, said on Tuesday that Takeaway.com’s all-share offer “grossly” undervalues the UK group. It rightly pointed out that Just Eat will contribute about 70% of the combined group’s revenue and gross profit, but receive just 52% of the equity. With fellow top-10 investor Aberdeen Standard Investments also criticising the price last month, a November shareholder vote on the deal looks set to be a tasty affair. 

So how much would Groen need to raise his offer to gain enough support from Just Eat shareholders? Using current prices and exchange rates, the UK group’s equity is worth about 3% more than the Takeaway.com offer. That doesn’t augur for a huge bump - even if the equity premium using undisturbed prices was a measly 15%. 

And Just Eat probably merits a lower valuation multiple than Takeaway.com anyway. The UK market is under assault from rivals like Uber Technologies and Deliveroo. Takeaway.com, by contrast, has managed to fight off competitor Deliveroo in Germany. Rival bidders for Just Eat are also nowhere to be seen, and any company with a large delivery business in the UK could be put off by a potentially hostile antitrust review. Crucially, some of Eminence’s fellow investors like activist Cat Rock also own larger stakes in Takeaway.com, giving them little reason to quibble on price. 

In other words, Groen might as well hang around for a while to see how many other shareholders speak up. A prospectus on the offer isn’t due until October. By increasing the price now, Groen would run the risk of bidding against himself. Just Eat’s merger bump may have a long delivery time.

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