Just Eat rejects rival takeover offer from Prosus

Online food delivery service Just Eat said on Tuesday that it had rejected an unsolicited £4.9bn cash offer from Prosus as it "significantly undervalues" the company.

Prosus, which was spun off from South African conglomerate Naspers, announced earlier that it had offered 710p a share in cash for each Just Eat share, which is a premium of 20% to the Takeaway.com offer of 594p a share and a 20% premium to the Just Eat closing share price on Monday.

Just Eat and Amsterdam-listed Takeaway.com announced in August that they had agreed an all-share merger.

Prosus pointed out that since the start of the offer period, shares in the high growth internet sector and online food delivery sector have fallen 16.9% and 15%, respectively. It also noted that the Takeaway.com share price has declined 15% in the same period.

The company said that against this backdrop, continued market volatility and macroeconomic uncertainty, the Prosus offer provides Just Eat Shareholders "the certainty" of an all-cash offer.

However, Just Eat said its board was unanimously recommending that shareholders reject the Prosus offer, which it pointed out is a premium of 11.7% to the undisturbed share price of 635.6p the day before the Takeaway.com offer was announced.

"The board of Just Eat has engaged fully with Prosus throughout this process, including providing access to Just Eat management and due diligence information in accordance with its obligations under the Code and with the intention of providing Prosus with sufficient information to put forward an attractive and compelling valuation of Just Eat. Prosus has not provided such a valuation and proposal to the board of Just Eat," it said .

Just Eat said the merger with Takeaway.com provides its shareholders with greater value creation than the terms of the Prosus offer.

"Accordingly, the board of Just Eat continues to recommend the Takeaway.com combination to Just Eat shareholders."

Just Eat also revealed that Prosus had made two previous offers, of 670p and 700p a share, respectively, both of which were rejected.

At 1250 BST, Just Eat shares were up 26% at 745.19p.

Just Eat shareholder Cat Rock Capital Management, which owns a 3% stake in the company, said the Prosus offer "dramatically undervalues" the equity, representing a multiple of only 3.8x fiscal year 2020 consensus revenue before ascribing any value to Just Eat’s valuable stake in iFood in Brazil.

"Based on historical transaction precedents and market multiples, Prosus should pay at least 5.0x Just Eat’s fiscal year 2020 revenue, again attributing no value to Just Eat’s valuable stake in iFood," it said in a statement. "This multiple would translate to an all-cash offer of at least 925p per share."

Cat Rock said the proposed Takeaway.com merger allows Just Eat shareholders to participate in future value creation and is therefore "far more attractive" than the Prosus offer.

Neil Wilson, chief market analyst at Markets.com, said there was always a strong possibility of a counter bid given the "increasingly low-ball" offer from Takeaway.com.

"A bidding war is now on," he said, adding that it may take 750p "to sort this out".

"Prosus has sniffed an opportunity as the all-stock offer from Takeaway.com has left JE shareholders nursing paper losses due to a drop in Takeaway.com shares. Having initially valued JE at 731p, the latest implied offer for the company prior to the Prosus bid was a more meagre 594p. The more Takeaway.com shares fell after the bid the less attractive the offer and the greater the likelihood of a cash counter bid. Takeaway.com shares are trading +4% on this."

Wilson said the Prosus offer "is in many ways very cheeky and even more low ball" than the Takeaway.com offer and while it has been rejected, it could force Takeaway.com to raise its offer as it looks in a weakened position due to the stock’s decline.

"It’s good news for JE shareholders - any tie-up offers the best way out, but management clearly think the strategic long-term value comes from the expertise of a hand-in-glove tie-up with Takeaway.com still. As previously noted, a merger/takeover of enough scale gives Just Eat and its interim CEO the perfect exit, whilst also creating a company with the scale and strength to take on Deliveroo, Uber Eats and Amazon.

"Global expansion and fighting off fierce competition is coming at a cost. It has become a difficult task in managing growth and building out scale without eroding margins. Investment in Latin America via its 33% stake in iFood is proving especially costly."

Olivetree Financial said that clearly Prosus was forced to take their offer direct to shareholders when Just Eat chose to move forward and issue the Scheme documents for the Takeaway offer to shareholders on Tuesday.

"The key inflexion point for both transactions is now the Takeaway offer scheme vote (4th Dec) with Prosus choosing to run a takeover offer as they are seeking to truncate their offer tender towards that date. We would expect Just Eat shareholders to pressure the board to engage with both parties and encourage them to present their best bids going into the Scheme vote.

"The ability for Prosus to increase their offer materially is clear by their balance sheet strength and parent Naspers thus their ability to pay an additional premium to secure a recommendation is where shareholders should focus. It would seem Takeaway's size, need to issue stock and limited ability to leverage and offer a premium to 710p without their stock trading up significantly limits their ability to compete."

Olivetree said there will likely be much focus on the concept that a third party might look to compete for Just Eat. It pointed out that in the last few years alone there has been a raft of consolidation in this space - Amazon / Deliveroo, Takeaway/ Delivery Hero Germany, Just Eat/Hungry House - and said it would be expected that a number of the large players would look at an asset like Just Eat.

"Expect to see the market focus on the possible interest of Uber/Deliveroo (Amazon) and Naspers amongst others. Uber is likely to be the main name linked here, although it has broadly been focused on organically rolling out its food delivery business. Differing to Takeaway, it would have terrific synergies with Just Eat in almost all geopgraphies which JE operates in – and with Just Eat shares trading so cheaply, it wouldn’t be at all hard to make this a very value creative transaction for Uber shareholders. However, with Just Eat nearly 50% exposed to UK markets, the Competition and Markets Authority's interest in Amazon’s investment in Deliveroo could highlight a potential impediment for such a deal."

Citi said Prosus's bid for Just Eat could well be part of a larger scale industry consolidation. It pointed out that Naspers holds a number of direct and indirect investments across markets and operators including Germany's Delivery Hero and Brazil's iFood.

Prosus already has a relationship with Just Eat via the shared ownership of iFood and this move would consolidate the Brazilian market, it said.