August 5, 2019 / 1:48 PM / in 4 months

Breakingviews - Takeaway.com's $6 bln Just Eat bid is undercooked

A woman is delivering food for Dutch food-delivery group Takeaway.com.

LONDON (Reuters Breakingviews) - Takeaway.com’s Just Eat offer looks undercooked. The 4.7 billion euro Dutch food-delivery group, led by founder Jitse Groen, has struck an all-share deal to buy its British peer with its highly valued stock. He may nonetheless have to come up with a more enticing platter to tempt Just Eat shareholders. 

The two boards on Monday announced a deal that would see investors in the London-based group receiving about one-tenth of a new Takeaway.com share in exchange for each Just Eat share. Groen would run the new company. Using the pre-announcement price of Takeaway.com, his offer values Just Eat at 5 billion pounds (5.4 billion euros), or 15% above its undisturbed value. 

That’s low. Strip out the 140 million pounds of cash Just Eat should have by year-end, using Refinitiv data, and the enterprise value is 3.8 times the 1.3 billion pounds of revenue analysts reckon it will generate in 2020. That’s well below Takeaway.com’s 9.5 times multiple, using pre-announcement prices.

True, Groen’s revenue will grow by 25% in 2021, according to analysts’ forecasts collected by Refinitiv, compared with Just Eat’s 16%. And the UK group looks rudderless without a permanent chief executive. But that’s hardly enough to justify a low-ball valuation. The British group’s 109 million pounds of forecast earnings next year, using Refinitiv data, is more than double the sum analysts expect Groen’s group to generate.

Nor are there many synergies to get excited about. Takeaway.com and Just Eat overlap only in Switzerland, which means cost savings are a measly 20 million euros; taxed and capitalised, that’s worth about 160 million euros before restructuring costs - a rounding error on the pairs’ market values. And Just Eat has other options to unlock value. Its 33% stake in Brazil’s iFood is valued by Credit Suisse analysts at 666 million pounds; deep-pocketed tech groups like Uber Technologies or Naspers could be interested. The same goes for Just Eat’s Canadian operations, which UBS analysts have valued at 1 billion pounds. 

The British group’s investors seem to expect more from Groen or a rival bidder. Using Monday’s Takeaway.com share price and forex rate, Groen’s offer is worth about 6.83 pounds per Just Eat share, while the UK group is trading at about 7.30 pounds. Groen should start preparing a second course with more substance.

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