RPT-BREAKINGVIEWS-Just Eat’s discount deal puts CEO on notice

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Karen Kwok

LONDON, Nov 13 (Reuters Breakingviews) - Just Eat Takeaway’s TKWY.AS CEO cannot afford another error. Jitse Groen’s $5 billion U.S. M&A venture has been offloaded at an embarrassing discount. The share jump of the $2.8 billion food delivery company following the announcement of Grubhub sale to rival Wonder suggests investors are relieved. But given the company is trading at a discount to peers his next mistake may be his last.

On the face of it, the $650 million Grubhub sale is worse for Just Eat Takeaway than it first appears. The deal consists of $500 million in Grubhub debt, and another $100 million in cash needed to fund daily operations. That means the Dutch-listed takeaway firm will receive just $50 million in net proceeds from the $5 billion all-share deal closed back in 2021.

For any other boss such an eye-watering markdown would lead to a swift departure. But the 20% surge in Just Eat’s shares following the announcement of the deal suggests there is some upside to offloading a souring business that was one of the prime reasons the company’s shares were down 85% since June 2021. Analysts expected Just Eat Takeaway's North America revenue to decline 8% this year, Visible Alpha data showed.

The discount deal can also help smarten up Just Eat Takeaway’s balance sheet. Groen can use the proceeds to wipe out the company’s net debt, and it will halve the company’s share-based expenses, which analysts expected it to be $152 million in 2024, according to Visible Alpha data.

Removing the U.S. business will also allow Groen to address Just Eat’s depressed valuation. The business is trading at 21 times the free cash flow analysts expect it to generate this year, versus DoorDash DASH.O which trades at 35 times and Deliveroo ROO.L at 32 times, according to Visible Alpha data.

Groen’s best shot at closing that gap is flogging other underperforming businesses. To start, he could offload the Canadian and Australian units, which together could deliver 350 million euros, Bryan, Garnier & Co analysts reckon. Groen then could reinvest those funds to expand in more promising markets like Poland. Boosting growth and calling time on disastrous deals may be Groen’s best hope at keeping his job.

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CONTEXT NEWS

Just Eat Takeaway on Nov. 13 said it had struck a deal to sell its U.S. unit Grubhub to food delivery startup Wonder for $650 million.

The Amsterdam-listed company had been looking to offload Chicago-based Grubhub since early 2022, after acquiring it in 2020 in a $7.3 billion all-stock deal. The acquisition completed in 2021 with a lower valuation of 4.8 billion euros ($5 billion).

Grubhub's enterprise value of $650 million includes $500 million of senior notes and about $150 million cash. Just Eat Takeaway said it expected net proceeds of up to $50 million from the deal.

Shares of Just Eat Takeaway were up 20% by 0803 GMT on Nov. 13.

(Editing by Aimee Donnellan and Streisand Neto)

((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))