Just Eat Takeaway weighs Grubhub sale as pandemic boost fades

By Toby Sterling

AMSTERDAM (Reuters) -Europe’s biggest meal delivery company Just Eat Takeaway.com is looking at selling U.S. arm Grubhub less than a year after buying it, under pressure from investors to revive its shares amid stiff competition and a fading pandemic boost.

In an abrupt turnaround, CEO Jitse Groen said Takeaway had hired banks to explore a possible sale of Grubhub – alongside potential partnership options it was already exploring – and that buyers had expressed more than casual interest.

“We are in talks with people around this (a sale), but I need to caution that doesn’t automatically lead to a transaction,” Groen told reporters.

Takeaway, which paid $7.3 billion for Grubhub in 2021 while racking up a billion-euro loss, has been hit as investors reappraise valuations for loss-making technology companies and stocks seen as big beneficiaries of the pandemic.

The company’s shares, which have lost two-thirds of their value since an October 2020 peak above 100 euros, rose strongly in early trading but were up just 0.8% at 26.31 euros at 1426 GMT, not far above their 2016 IPO price of 23 euros.

At current levels, Takeaway’s market value of 5.3 billion euros ($5.8 billion) is less than it paid for Grubhub.

CFRA Research analyst Angelo Zino said Grubhub’s value was now likely much lower than during the pandemic, “as revenue remains above pre-pandemic levels but growth has stalled.”

Competitors that might be interested in buying Grubhub, Doordash and Uber Eats, would likely face opposition from U.S. antitrust authorities, he said.

Investor sentiment towards online food companies has soured amid expectation that some customers who switched to home deliveries during the pandemic will return to restaurants.

In a trading update, Takeaway said orders had fallen 1% in the first quarter and it now expected “mid-single digit growth” in Gross Transaction Value (GTV) this year, instead of the “mid teens” predicted in January.

GTV measures the total value of food ordered and delivered.

Takeaway handled 264.1 million orders in the first quarter, compared with an estimate of 286 million by JPMorgan analysts.

Catalysts

The downgrade to Takeaway’s outlook follows a warning by British rival Deliveroo last week that consumer spending could slow this year amid a cost-of-living squeeze.

Takeaway and Deliveroo have been striking deals with supermarkets to add on-demand grocery delivery to their offerings to try to stave off competition from “fast grocery” startups such as Gorillas of Germany and Getir of Turkey.

Groen said his operational focus would be on growing average order sizes and cutting costs. “We expect profitability to gradually improve throughout the year, and to return to positive adjusted EBITDA (core earnings) in 2023,” he said.

Major shareholders including Cat Rock, the company’s second-largest with a 6.88% stake, publicly criticised the purchase of Grubhub and called for its sale.

Grubhub has strong positions in East Coast cities, notably New York, but its profitability was hit by caps on the commissions it is able to charge restaurants in the pandemic.

Takeaway is challenging the legality of the fee caps, which it says are costing the company around 200 million euros annually in lost operating profit.

In a note, Barclays analysts said Takeaway looked undervalued on a “sum of the parts” basis.

“There are still potential catalysts to unlock this with the process on Grubhub ongoing, a sale of (Takeaway’s stake in Brazilian business) iFood possible, legal cases around fee caps ongoing in the U.S., and the AGM upcoming.”

Last week, hedge fund Lucerne Capital Management, with around 600,000 shares, said it would vote against the reappointment of the company’s finance chief at the AGM in May to protest over alleged poor communication and the weak share performance.

($1=0.9262 euros)

(Reporting by Toby Sterling, Bart Meijer, Piotr Lipinski, Paul Sandle, Praveen Paramasivam.Editing by Clarence Fernandez and Mark Potter)