Just Eat's US deal is positive move, UBS says

Just Eat agreed on Thursday to buy Grubhub for $7.3bn in an all-share deal to form the world's biggest online food delivery company outside China.

Initial reaction from investors was sceptical because of lack of synergies, the highly competitive US market and timing so soon after Takeaway.com completed its acquisition of Just EAt in the UK, UBS said.

UBS said the concerns were valid but that positives included the opportunity to turn around Grubhub in a big market, the need for scale in a global race and the record of Just Eat's management. The investment bank left its price target on Just Eat shares unchanged at £97.

The US market is large and under-penetrated with Grubhub covering 9% of potential customers compared to Just Eat's 30% share in the Netherlands, UBS analyst Hubert Jeaneau said. The US is a tough market but a logical one for the company to take on with the Covid-19 crisis accelerating trends towards online food ordering, Jeaneau said.

Just Eat released a very strong trading update with details of the deal and though orders might ease when coronavirus lockdowns are relaxed the increase in customers and restaurant signups should be more lasting,

"Past the initial surprise of the announcement, most investors we spoke to have started to take a long-term view on the potential upside from the US asset, while recognising near term challenges," Jeaneau wrote in a note to clients. "European investors are less familiar with the dynamics of the US market, which is deemed highly competitive. Yet most investors regard JET's management highly and we expect to see a change in perception from negative to positive."