Prosus launches charm offensive for Just Eat

29 Oct 2019

Food delivery is a high-stakes game in which size counts. Naspers subsidiary Prosus is fighting for its share of the pie.

Naspers subsidiary Prosus is turning on the charm as it tries to woo shareholders of food delivery firm Just Eat following its sudden and surprising offer for the smaller firm last week.

Prosus made a £5-billion all-cash offer for Just Eat on 22 October 2019, causing delivery bikes to wobble and milkshakes to froth at the London-based company.

In late July, Just Eat executives agreed to a £9-billion merger with smaller rival Takeaway.com. In fact, on the same day that Prosus launched its hostile offer, Takeaway alerted its shareholders to an extraordinary general meeting to be held on 4 December 2019 to vote on the Just Eat Takeaway transaction.

Group CEO Prosus and Naspers Bob van Dijk appears undaunted by this.

“We welcome the opportunity to engage with shareholders to discuss the merits of our offer,” the company said in a statement issued late on Monday 28 October.

The statement noted that the Just Eat share price was 589p on the day before Prosus announced its offer, 20% lower than the Prosus offer of 710p/share.

The London Stock Exchange-listed Just Eat has seen a few swings in its share price since July, when it became known that some form of merger and acquisition activity was imminent.

Source: LSE

“In our view, this price [589p] reflected the market’s disappointment in the continued weak performance of the business, as most recently evidenced in their Q3 update,” the Prosus statement continued. “This, softer share price, reflects the strong competitive pressures the business is facing and highlights the significant investment required to compete successfully”.

The board of Just Eat has arguably been blindsided by the Prosus offer. After all, the merger with Takeaway.com will create the world’s biggest online food-delivery service outside China and they believed it positioned the company to give rivals such as Uber Eats a run for its money.

However Just Eat shareholders may be more mindful of the fact that deep pockets help in a hotly competitive space already dominated by the likes of Uber Eats and Deliveroo.

“We intend to invest in the business in order to ensure it remains competitive,” the statement said. “We aim to deliver value by eliminating operational execution risk and providing certainty for Just Eat shareholders today at an attractive premium.”

As pointed out in Business Maverick last week, the Prosus offer illustrates just how competitive the food delivery market has become.

It also underpins Van Dyk’s belief that food delivery is a huge, disruptive opportunity particularly in developed, urban markets where the convenience and speed of food delivery is becoming enormously popular.

However, Van Dijk and his team may have to do more than just woo shareholders.

Some investors are already rubbing their hands together at the prospect of a bidding war, as evidenced by the fact that the share price has risen to above the 710p offer price.

Edinburgh-based Aberdeen Standard Investments, which holds 5.2% of Just Eat, has rejected both of the bids on the table, according to The Times. To be attractive, Prosus will need to increase its offer by at least 20%, according to analysts.

Other investors, however, have accused Prosus of manipulating the market. In particular, Cat Rock Capital, which owns 3% of Just Eat and 5.6% of Takeaway and was instrumental in effecting the merger between the two, is enraged by the Prosus offer.

In a blistering statement issued on Monday 28 October, the long-term oriented investment firm said:

“Just Eat shareholders are being directly and materially harmed by Delivery Hero’s sustained selling programme in Takeaway.com stock, which is undermining the value of Takeaway.com’s bid for Just Eat.”

This is where Prosus’s investments across this rapidly consolidating market segment could become slightly counter-productive. Prosus owns a 22% stake in German food ordering company Delivery Hero, which in turn owns a 13% stake in Dutch firm Takeway.com.

In September, Delivery Hero hired bank Morgan Stanley to sell three million shares it owned in Takeaway at a minimum of €73 each. It is this share sale that Cat Rock alleges is depressing the price of Takeaway.com. A lower share prices has consequences for the deal with Just Eat, given that it is an all-share deal.

As a result on 28 October Takeaway issued a statement asking Delivery Hero to abstain from voting on its acquisition of Just Eat, claiming a conflict of interest.

Prosus was quick to defend itself, noting in the statement that it does not control Delivery Hero or its investment decisions.

Prosus had not disclosed its interest in making an offer for Just Eat to Delivery Hero prior to its bid for Just Eat, the statement said.

Meanwhile, the Prosus share price is hovering at about €62.50, well off its September 2019 listing price of €74. BM

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