Just Eat Takeaway to buy Grubhub for $7.3bn

The deal will make the group the biggest online food delivery business in the world, outside China

June 11, 2020

Just Eat Takeaway.com (JET) is on the verge of entering the US market, having agreed to acquire online food delivery platform Grubhub (US:GRUB) for $7.3bn (£5.8bn).

IC TIP: Hold at 7,604p

The deal will make Just Eat Takeaway the largest online food delivery business outside China, and is expected to be completed in the first quarter of 2021, pending shareholder approval. Grubhub chief executive Matt Maloney will join the Just Eat management board. Just Eat’s ownership of Canadian outfit SkipTheDishes formed part of the group’s rationale for the merger, as it seeks to dominate North American food delivery.

Grubhub shareholders will be entitled to receive American depositary receipts representing 0.671 Just Eat shares in exchange for each Grubhub share, giving an implied value of $75.15 per Grubhub share. Just Eat shares by fell as much as a fifth yesterday after the group confirmed that it was in advanced discussions over the tie-up.

The announcement comes amid a spike in food delivery demand attributable to the coronavirus pandemic, with sales in April and May up 41 per cent across the group compared with full-year sales growth of 23 per cent. It also follows the £6.2bn merger of Just Eat and Takeway completed earlier this year.

Uber (US:UBER), which has also experienced rapacious demand on its own Uber Eats food platform during the crisis, was also reportedly interested in Grubhub. But Helal Miah, investment research analyst at The Share Centre, said yesterday that these talks were likely to fail given fears over competition. “An international suiter was always going to be better and less troublesome for Grubhub,” he added.

The deal represents the latest round of attempted consolidation in the food delivery sector. Yesterday, the Competition and Markets Authority delayed the deadline for its final ruling on Amazon’s (US:AMZN) planned takeover of Deliveroo to 6 August. The deal was provisionally cleared in April after Deliveroo told the regulator that the impact of the pandemic would see it collapse without Amazon’s backing.

The watchdog, which had set its deadline at 11 June for the Amazon/Deliveroo takeover, cited coronavirus as the reason behind its delay. Just Eat Takeaway has participated in the consultation - it warned in May that given the rapidly changing market conditions, it had “doubts over the credibility of the exiting firm scenario put forward by Deliveroo as it believes that there were alternative avenues available to it to raise funding”.

Yesterday’s share price jolt may have captured some unease over the pace of Just Eat’s expansion, with the group still bedding in as an enlarged entity from its very recent Takeaway.com merger. While demand for food delivery is clearly strong, this will likely be threatened by the weakening of consumer purchasing power during a recession - the ‘new normal’ of food delivery is more likely to revolve around demand for services from the likes of Ocado (OCDO), and not takeaways. We expect a continued surge in food deliveries for the foreseeable future as social restrictions remain across a large proportion of the group’s key markets, but recognise the medium-term threat to earnings and the additional risks posed by over-expansion. Hold at 7,604p.