Tuesday’s dramatic hostile counter-bid for the British Internet takeout company Just Eat arrived almost fully baked. The assailant, the European offshoot of South African technology giant Naspers, is throwing the prospect of cash at Just Eat’s shareholders to persuade them to ditch an all-share merger deal with Dutch rival Takeaway.com.
The new offer isn’t that tempting. It needs a big dollop of dessert to make it irresistible.
Naspers listed the bid vehicle, Prosus, in Amsterdam last month and analysts had expected it to gatecrash. But the £4.9-billion (R93-billion) cash bid looks mean as far as takeovers go. It equates to a low premium of 12% above Just Eat’s price before the Takeaway.com talks emerged.
True, the Prosus offer is superficially better than the Takeaway.com merger. The latter deal would give Just Eat shareholders just over half the combined company, roughly in line with the duo’s average relative market values in the three months before discussions leaked. The upside would be split almost equally between each side’s investors. But there wouldn’t be much to share. Takeaway.com envisaged just €20-million of cost savings annually after four years. The governance was a bit of a fudge with board seats handed to both sides.
Moreover, Prosus’s premium is arguably higher than it looks. As Prosus points out, the Internet sector’s shares have fallen in recent months. Takeaway.com is down 15% since the Just Eat talks emerged in July. If there were no negotiations and Just Eat shares had tracked its peer, its shares would be trading at about £5.40. Prosus’s hostile offer adds 31% to that — that’s a more conventional-sized takeover top-up.
Isn’t high enough
But the offer still isn’t high enough. Many of Just Eat’s top shareholders are also invested in Takeaway.com. For them, the precise terms of the existing merger plan don’t matter too much. They may have liked the idea of crunching their holdings into a single big player they could hold over the long term. Forgoing that opportunity by cashing out demands a better than average premium.
With US$5.7-billion of net cash and billions of dollars of listed holdings, Prosus can afford to go higher. Its offer ascribes Just Eat an enterprise value of 3.8 times estimated 2020 sales, as shareholder Cat Rock Capital Management notes. Takeaway.com’s trading multiple is 8.3 times, although its markets are less competitive.
Just Eat’s expected £394-million of operating profit for 2023 would indicate a 7% post-tax return for Prosus from the deal. That’s in line with the target’s cost of capital. Add cost savings and the returns would probably be higher, which would justify paying more.
It’s hard to see how Takeaway.com, with a market value of just €4.5-billion, could outbid Prosus. Nor is it clear that another tech giant might want to wade in. But shareholders have leverage just from saying no. They should back their board in demanding more before recommending a full takeout. — Written by Chris Hughes, (c) 2019 Bloomberg LP