Just Eat Takeaway’s shareholder Cat Rock Capital urges the unicorn’s board to sell or spin-off GrubHub by 2021-end

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Online food ordering company JustEatTakeaway.com has landed in a difficult position after Cat Rock Capital Management, one of its largest shareholders , urged the company’s management to sell or spin-off GrubHub by the end of the year. 

The investor asked the Dutch company to refocus the business and address what it sees as a deep undervaluation of Just Eat’s equity. Based out of Connecticut, Cat Rock Capital is Just Eat Takeaway.com’s second-largest shareholder with a 6.5 per cent stake. 

“A deeply depressed stock price poses a real risk to JET’s business, limiting its financial and strategic flexibility, inviting competitors to invest in its markets, and leaving the company vulnerable to takeover bids well below its long-term intrinsic value. JET must take substantive and immediate action to solve this valuation problem,” Cat Rock founder Alex Captain said in an open letter addressing company management.

Just Eat Takeaway.com’s reply

In a response to the US investor, Just Eat Takeaway.com completed the €6.5B acquisition of Grubhub on 15 June 2021; just only four months ago. 

“While Grubhub has some specific challenges today, it is a large and growing business with good underlying profitability. The company has a clear improvement plan to refocus Grubhub on key strongholds, expand new verticals, and is excited by Grubhub’s potential,” the company explains. 

The company also added that Grubhub has significant strategic value and it will play a role in an expected consolidation of the wider US market over time.

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“The Just Eat Takeaway.com management team expects to be involved in this consolidation when it comes and intends to do so from a position of strength that reflects the strategic value of Grubhub,” says the company. 

What does Captain Alex have to say?

Captain believes that JET needs to take “substantive and immediate action” to solve its valuation problem.

According to him, ““Fortunately, JET management has an obvious and actionable lever to quickly solve its valuation problem and refocus its business – selling or spinning-off Grubhub. JET’s stock appreciated +329% from its 2016 IPO to the day before the Grubhub acquisition announcement in June 2020, 2 dramatically outperforming the market. Since announcing the Grubhub purchase just 16 months ago, JET stock has underperformed the MSCI World Index by a remarkable 69%.” 

He also suggests selling Grubhub to Amazon Whole food. “Grubhub is the only credible path for US online grocery businesses such as Amazon, Walmart, and Instacart to match the converged online food and online grocery offerings of DoorDash and UberEats. There is no question that a combined online food delivery and grocery app offers a far better consumer proposition than either service alone.

“For example, a partial or complete Grubhub sale to Amazon Whole Foods at any valuation would significantly improve the consumer proposition for both companies and dramatically increase competition in the US online food delivery market by providing Grubhub with the resources to credibly compete against the massive, converged US businesses of DoorDash and UberEats

He continues, “The rationale for a sale or spin-off of Grubhub is obvious and urgent. Further, a spin-off is entirely under JET management’s control. If JET management fails to pull this lever by 31 December 2021, it will be clear to us and other shareholders that JET management cannot move quickly and decisively enough to compete in a fast-paced sector such as online food delivery.”

Part of consolidation

Last week, Jitse Groen, CEO of Just Eat Takeaway.com said the newly acquired Grubhub will eventually be part of a consolidation in the US delivery market, reported Reuters. 

“Grubhub is fresh,” he said, but added that “anything that makes Grubhub a stronger player – we’ll look at it”.

GrubHub is pitted against Uber Eats and DoorDash in the US and investors have asked the company to address its competitive position in the country. Additionally, they want to clarify its strategy on grocery delivery where it competes against Amazon-backed Deliveroo in Europe.

Takeaway’s shares have sunk 25 per cent this year due to the company losing market share in US suburbs and after New York City imposed a cap on the commission food-delivery companies can charge restaurants.

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