The Board of Just Eat (LON:JE) has announced that it is today publishing its response circular in connection with the unsolicited cash offer to acquire the entire issued and to be issued share capital of Just Eat for 710 pence per share.
The Board continues to believe that the Prosus Offer significantly undervalues Just Eat both on a standalone basis and as part of the proposed recommended all-share combination with Takeaway.com. A letter from the Chairman of Just Eat to Just Eat shareholders, as set out in the Response Circular, has been extracted below.
Letter from the Chairman of Just Eat to Just Eat shareholders
Thank you for taking the time to read this document. It contains information which we believe is of great significance to you. As you know, on 22 October 2019 Prosus announced an offer for Just Eat of 710 pence per share in cash. It is your Board’s view that this significantly undervalues Just Eat both on a standalone basis and as part of the proposed recommended all-share combination with Takeaway.com. This document explains why.
710 pence represents an implied premium and multiple of revenue well below market benchmarks
The Prosus Offer of 710 pence per share is 20% lower than Just Eat’s all-time high share price of 890 pence and 13% lower than the highest share price over the last six months of 812 pence. Furthermore, the premium that Prosus is offering to Just Eat’s share price before the announcement of the Takeaway.com Combination is just 12%. By comparison, cash offers for FTSE 350 UK public companies since 2016 have on average been at a significantly higher premium.
Prosus is only offering 4.8x Just Eat’s 2019 revenue. This is significantly lower than the average multiples of comparable transactions in the online food delivery sector, most notably the multiple that Naspers, who are a 74% shareholder in Prosus, paid for its investment in Delivery Hero, in September 2017.
Just Eat has leading market positions in a rapidly expanding sector with massive headroom
Your company today operates in a massive and growing addressable market estimated to be worth up to £476 billion in 2019, with ongoing material structural growth underpinned by increasing penetration of online food delivery and restaurant availability.
We are the market leader for online food delivery in eight of our thirteen markets, with a market share of more than double our nearest competitor in our largest, most attractive markets in the UK, Canada and Brazil.
Our industry is young and its growth potential is enormous. With further investment, our hard won market positions will deliver significant upside to you over the long term.
We have built a unique hybrid model with world-class capabilities which has delivered proven results
We believe the winning model in online food delivery will be the one which gives consumers the broadest choice and the best experience. Having established a leading and profitable marketplace business, we are successfully building a meaningful and highly complementary delivery offering for those restaurants – including global quick service restaurant chains (“QSRs”) – who do not have their own delivery capability. This has driven the creation of our leading hybrid marketplace model that is best placed to win.
Delivery represented more than 25% of our orders and 38% of our revenue in the first half of 2019, and we have established partnerships with many of the world’s largest QSRs across multiple markets.
Our market-leading consumer brand recognition has been complemented by over £500 million of investment in the development and acquisition of technology and software enabled platforms since 2016.
Just Eat has a long-term track record of value creation for its shareholders. Since our IPO in 2014, our total shareholder return of 190% compares to 38% total shareholder return for the FTSE 350. Since 2014, we have delivered average annual revenue growth rate of approximately 50%, increased active customers by 246% and expanded the number of restaurants by 145%. We have achieved this against a backdrop of a dynamic food delivery industry that has experienced massive consumer change, and seen our competitors benefit from significant investment from third parties.
We have a clear winning strategy which we will accelerate through increased investment
As we have previously mentioned to you, the early results of our strategic execution in building a winning hybrid marketplace model are strong, with notable progress in the UK and Australia building from our successful and profitable delivery model in Canada. Our continued success gives us the confidence to continue to invest at pace and we have a number of growth levers and strategic initiatives available which will accelerate revenue growth across our markets.
These initiatives include supply expansion and a broader delivery footprint, reinforcing customer value and accelerating growth in our customer base, enhancing our customer experience, and diversifying our proposition through new restaurant services and adjacent market opportunities. Whilst these initiatives might, depending on their nature and timing, impact on our profitability in the future, we believe it is important to continue to invest to drive the significant long-term value creation opportunity that is available to us and our shareholders.
We believe that these strategic initiatives will capitalise on the strengths of our unique hybrid marketplace model and will serve to: (a) further develop or grow our market positions; (b) offer consumers the broadest choice across meal occasions thereby enhancing our customer growth and retention, order frequency and delivery economics at scale; and (c) drive long-term revenue and profit growth.
The Takeaway.com Combination is based on a compelling strategic rationale that allows you to participate in the upside potential of the enlarged group
On 5 August 2019, your Board announced the recommended all-share combination with Takeaway.com. As set out in further detail at the time your Board recognises that the Takeaway.com Combination represents an opportunity to create one of the leading online food delivery companies in the world with scale, strategic vision, industry-leading capabilities, leading positions in attractive markets and a diversified geographic presence.
The Takeaway.com Combination creates the second largest food delivery player globally and the largest outside China and it will be the market leader in 15 of the 23 countries where it operates. This scale will further drive Just Eat’s ability to invest and innovate, share know-how and best practices across markets.
The Takeaway.com Combination gives you exposure to the Netherlands and Germany, two high-quality markets which will further drive profitability and financial strength. Access to these profit pools will provide a deep pocket of capital and further flexibility to make strategic, long-term investment decisions in a fast-moving sector, underpinned by the operating leverage of the Takeaway.com Combination. They will also provide synergy potential and the scope for longer term platform consolidation.
Furthermore, the Takeaway.com Combination provides access to a proven founder-led management team, led by Jitse Groen, which has achieved significant success in our sector.
The Takeaway.com Combination enhances your business and provides you with the opportunity to remain invested through a premium listing in London with FTSE UK index inclusion and benefit from significant future upside. Your Board believes that the Takeaway.com Combination provides Just Eat shareholders with greater value creation than the Prosus Offer of 710 pence per share and that the Prosus Offer significantly undervalues Just Eat on a standalone basis.
You should take no action in relation to the Prosus Offer of 710 pence per share
Your Board, which has been so advised by Goldman Sachs, Oakley Advisory and UBS as to the financial terms of the Prosus Offer, firmly believes that the Prosus Offer of 710 pence per share in cash significantly undervalues your company and that you should reject it and neither accept through CREST nor return any Prosus Form of Acceptance. In providing their financial advice to the Directors, Goldman Sachs, Oakley Advisory and UBS have taken into account the Directors’ commercial assessments.
Accordingly, the Board unanimously recommends that you should take no action in relation to the Prosus Offer of 710 pence per share in cash. Instead, the Board unanimously recommends that you accept the Takeaway.com Offer, either through CREST or complete and return your Takeaway.com Form of Acceptance for the Takeaway.com Combination.
The Directors who have beneficial holdings of Just Eat shares have irrevocably undertaken to accept or procure acceptance of the Takeaway.com Offer in respect of their beneficial holdings totalling 660,476 Just Eat shares (representing approximately 0.10 per cent. of Just Eat’s issued share capital on the Latest Practicable Date).
We will write to you again during the course of the Prosus Offer to keep you informed of any developments. In the meantime, if you have accepted the Prosus Offer, you should be aware that if the Prosus Offer has not become or been declared unconditional as to acceptances by 1pm on 1 January 2020 you can withdraw your acceptance of the
Chairman of Just Eat
In accordance with the requirements of Rule 25.1(b) of the City Code on Takeovers and Mergers (the “City Code”), a copy of the Response Circular will shortly be made available on www.justeatplc.com. A copy of the Response Circular has been submitted to the National Storage Mechanism and will shortly be made available for inspection at www.morningstar.co.uk/uk/NSM/.