EDITORIAL: Looming bidding war for Just Eat a test of Naspers’s prudence
Prosus will either squander its $6bn windfall from Tencent or squander an opportunity to chart a new path
It did not take long for Naspers’s newly listed internet business, Prosus, to make a move in the European merger & acquisitions scene. And it is an audacious move that, if successful, will give its online food delivery offering enough scale to take on Silicon Valley giant Uber Eats and Amazon-backed Deliveroo — one of Europe’s fastest-growing tech companies.
Prosus, which owns a third of China’s biggest internet company, Tencent, waded into the fight for Just Eat, a UK-based online food delivery firm, making an offer equivalent to R93bn directly to shareholders this week.
The 710p per share offer, which was swiftly rejected by Just Eat’s board as being too low, comes after Just Eat had agreed to an all-share tie-up with Dutch rival Takeway.com, whose proposal valued Just Eat’s shares at 731p each, based on the suitor’s share price when the deal was announced in July.
It’s a cheeky offer that capitalises on Takeway.com’s roughly 20% drop in share price in recent weeks. The decline has substantially chipped away at the commercial merits of its deal with Just Eat. Based on Monday’s close — the day before Prosus swooped in — Takeway.com’s offer valued Just Eat’s stock at just 594p each.
But few would have been surprised by the swift rejection by Just Eat’s board of Naspers’s bid, which is below the Takeway.com initial valuation and comes with a penny-pinching premium of just 12% on Monday’s closing price.
Furthermore, a tie-up with Takeway.com would make Just Eat shareholders owners of more than 52% of the bigger, merged entity.
Perhaps most importantly, the prospects of losing the perks that come with keeping their jobs in the merged entity, Just Eat’s management team has another reason to shun the Prosus bid: the top leadership team of Just Eat — from CFO and COO to chair — have all been promised senior executive roles in the combined company.
Naspers CEO Bob van Dijk still hopes shareholders can be persuaded. Other than the premium, Prosus’s bid has other things going for it: it comes in cash and promises to invest a substantial amount of money to help Just Eat grow and defend its position in a fiercely competitive online food delivery market worth $100bn.
However, the cash offer might not be enough to convince shareholders to vote down the Just Eat-Takeway.com tie-up, if the British company’s share price is anything to go by. The stock rose nearly 2% on Wednesday, adding to a more than 24% surge notched up the previous day and shooting past the Prosus bid to just more than 745p. In fact, Just Eat investor Cat Rock Capital, which owns roughly 3% of the company, has already dismissed Prosus’s offer, saying it “dramatically undervalued” the company.
The hedge fund wants Prosus to pay at least five times Just Eat’s 2020 sales, or 925p per share. It may well be that Prosus’s lowball offer was just the first salvo in the fight for Just Eat. But Takeway.com, which has a market value of R73bn, cannot afford to go to war with Prosus — Euronext’s third-largest company valued at R1.6-trillion. The fight will be with Just Eat’s shareholders, who are already signalling that they want Prosus to cough up a bit more.
It’s unlikely that Just Eat shareholders would pass up the opportunity of participating in the potential upside in a bigger merged entity, by ditching an all-share deal with Takeway.com and accepting Prosus’s lean 12% premium for their company.
For Prosus investors, many of whom are South Africans holding it indirectly via Naspers, the looming bidding war would be an opportunity to work out how prudent the company would be in deploying the Tencent windfall, which as at the end of June totalled $6bn.
It would also test Van Dijk’s determination to make online food delivery, online payments and online classifieds the cornerstone of his strategy to wean Prosus off its unhealthy addiction to Tencent.