Cat Rock Capital Sends Open Letter to Just Eat Shareholders Urging Acceptance of Takeaway.com Merger Offer

Takeaway.com Merger Creates Formidable Global Leader with World-Class Management

Cat Rock Believes Value of Combined Company Could Be 1,200p per Share by End of 2020

Cat Rock Believes Takeaway.com Stock Attractively Valued Regardless of Merger

Prosus Offer and Just Eat Standalone Case Both Highly Unattractive Alternatives

GREENWICH, Conn.--()--Cat Rock Capital Management LP (together with its affiliates, “Cat Rock Capital”), a long-term oriented investment firm and beneficial owner of approximately 17.7 million shares of the common stock of Just Eat plc (“Just Eat” or the “Company”) (LSE: JE), representing circa 3% of Just Eat’s outstanding shares, today sent an open letter to Just Eat shareholders. Cat Rock Capital urges Just Eat shareholders to accept the Takeaway.com offer, consistent with the unanimous recommendation of the Just Eat Board.

Alex Captain, Founder and Managing Partner, Cat Rock Capital Management LP, commented:

Cat Rock Capital is a long-term supporter and shareholder of both Just Eat and Takeaway.com, which we believe are both high-quality businesses with significant growth potential.

A Just Eat merger with Takeaway.com would create a formidable global leader with significant growth prospects and world-class management. We believe this combined company could comfortably be worth over 1,200p per share by the end of 2020, providing Just Eat shareholders with 60% upside to the current share price.

A Just Eat standalone case would continue the terrible value destruction and lost opportunities that the Company has suffered since David Buttress’s departure almost three years ago.

The Prosus offer significantly undervalues Just Eat and shares none of the future potential of the business with Just Eat shareholders. Prosus has a strong incentive to overstate the challenges facing Just Eat, and we deeply disagree with their characterizations of both Just Eat and Takeaway.com.

We urge other Just Eat shareholders to join us in accepting the Takeaway.com offer that the Just Eat Board has unanimously recommended.”

The full text of Cat Rock's letter is included below and is also available at the following website: JustEatMustDeliver.com

AN OPEN LETTER TO JUST EAT SHAREHOLDERS

26 November 2019

Fellow Just Eat Shareholder:

Cat Rock Capital Management LP (‘Cat Rock’) is a US-based investment firm that currently owns approximately 17.7 million shares of Just Eat plc (‘Just Eat’) and 3.5 million shares of Takeaway.com NV (‘Takeaway.com’). We have extensive experience in the online food delivery sector and have been shareholders at both Just Eat and Takeaway.com for over two and a half years.

As many of you know from our prior correspondence, we believe Just Eat is a high-quality business with great growth potential that is deeply undervalued. We have therefore worked actively over the past year to help Just Eat realize its potential through strategic alternatives.

Takeaway.com and Prosus NV (‘Prosus’) have now both presented formal offers to Just Eat shareholders, and yesterday the Just Eat Board published materials supporting its unanimous view that shareholders should accept the Takeaway.com offer and reject the Prosus offer.

We strongly agree with the Just Eat Board’s recommendation and urge other Just Eat shareholders to join us in accepting the Takeaway.com offer. We believe that the rationale for accepting the Takeaway.com offer is clear:

  1. Just Eat Takeaway.com (‘JET’) creates a formidable global leader with significant growth prospects. Just Eat and Takeaway.com have assembled an impressive collection of clear market-leaders in large and structurally attractive markets like Germany, the Netherlands, and the UK. These markets are profitable and structurally attractive because: i) the JET businesses are multiple times the size of the next largest competitor,(1) and ii) a significant portion of restaurants in these markets do their own delivery. These scaled JET marketplace platforms offer consumers far greater selection with much lower delivery fees than the logistics-based competitors, all while earning strong profits.(2) Moreover, logistics-based competitors are structurally disadvantaged in these markets because of high labor costs, restrictive labor regulations, the lack of a tipping culture, low order values, and consumer sensitivity to delivery fees. We believe that Just Eat has not realized its potential in the UK because it has lacked stable, capable, and experienced management since the departure of David Buttress in early 2017. Takeaway.com’s leadership under CEO Jitse Groen is arguably the most experienced and capable online food delivery team in the world – we are incredibly excited about JET’s prospects under this leadership team.
  2. JET could be worth 1,200p per share by the end of 2020 with reasonable assumptions (~60% upside). The 1,200p per share 2020 price target for JET equity is based on 2021 consensus revenue forecasts for Just Eat and Takeaway.com and a multiple of 7.5x forward revenue.(3) We believe that a 7.5x forward revenue multiple is consistent with historical trading averages and is supported by a normalized free cash flow margin estimate of >35% for the combined business.(4) JET’s core markets have a structurally high share of marketplace restaurants that support sustainable cash flow generation (2018 EBITDA margins of 49% in the UK and 54% in the Netherlands).(5) Moreover, these markets continue to have significant growth potential – JET grew revenue 41% organically in 2018 and order frequencies remain below once per month in even the more mature markets like the UK and Netherlands.(6) Notably, the 1,200p per share price target ignores Just Eat’s valuable stake in iFood.(7)
  3. Takeaway.com equity is attractively valued on a standalone basis and much more attractive post-merger. We have been shareholders at Takeaway.com for two and a half years and believe that it is attractively valued at current prices regardless of whether the Just Eat merger is completed. In fact, we have increased our Takeaway.com investment almost 40% over the past few months given that we see attractive outcomes for Takeaway.com under a range of scenarios. The math supporting Takeaway.com’s valuation is simple. The consensus 2020 estimate for Takeaway.com revenue is €571m,(8) and we believe that Takeaway.com can sustainably earn normalized free cash flow margins of >45%. At the current share price of €82, Takeaway.com trades at ~27x our estimate of 2020 normalized post tax free cash flow while growing revenue 37% organically in the first half of 2019 with substantial runway for future growth.(9) We believe the >45% normalized margin assumption is conservative because Germany and the Netherlands represent close to 80% of Takeaway.com revenue. The Netherlands had 50% EBITDA margins in the first half of 2019 without any Scoober delivery fees,(10) and Takeaway.com management has said that German EBITDA margins should reach Dutch levels or higher over time given the highly attractive market structure in Germany.(11) We believe that Takeaway.com is attractively valued at current prices regardless of the outcome of this merger process, and we would be excited to further increase our exposure to Takeaway.com by accepting its shares as merger consideration.

While the Takeaway.com offer creates a high-quality business with world-class management at an attractive price, the Prosus offer and the Just Eat standalone case represent highly unattractive alternatives for Just Eat shareholders.

By selling to Prosus, Just Eat shareholders part with their shares at an incredibly low price and crystallize the value of Just Eat when it has lacked effective management for several years. By pursuing a standalone option, Just Eat shareholders would continue the status quo that has led to underperformance and market share loss.

We therefore urge Just Eat shareholders to join us and the Just Eat Board in accepting the Takeaway.com offer. We would be happy to discuss our views or research with any interested Just Eat shareholders – please contact info@catrockcap.com to arrange a call or meeting.

Best Regards,
Alex Captain
Founder and Managing Partner
Cat Rock Capital Management LP

Sidley Austin LLP and White & Case LLP are serving as legal advisors to Cat Rock Capital Management LP.

About Cat Rock Capital Management LP

Cat Rock Capital Management LP is a long-term focused investment firm that manages capital on behalf of pension funds, endowments, foundations, and other institutional investors. It seeks to invest in a select number of high-quality companies, with a long-term approach that emphasizes deep fundamental research. Cat Rock Capital is based in Connecticut, USA and was founded in 2015 by Alex Captain, a former Partner at Tiger Global Management.

Notes:

(1) UBS Evidence Lab consumer survey results (19 June 2019); YouGov consumer survey results (January 2019); Cat Rock Capital consumer survey results (4 August 2019); Google Trends LTM search frequency market share (25 November 2019).

(2) Restaurant counts and average delivery fees according to Yipit Research as of September 2019. Just Eat reported that the majority of the company’s UK orders carried a delivery fee of less than £1 on the company’s FY18 earnings call on 6 March 2019.

(3) 2021 consensus revenue forecasts and GBP/EUR exchange rate according to S&P Capital IQ as of 25 November 2019.

(4) Historical trading multiples according to Bloomberg as of 25 November 2019. Takeaway.com Average TEV / NTM Revenue since IPO = 8.3x, Just Eat Average TEV / NTM Revenue since IPO = 7.2x. Support for historical trading multiples and normalized free cash flow margin estimate available at https://justeatmustdeliver.com/takeaway-offer-valuation.

(5) Just Eat 2018 EBITDA margin based on revenue and EBITDA reported in Just Eat 2018 Annual Report dated 25 March 2019. Takeaway.com 2018 EBITDA margin based on revenue and EBITDA reported in Takeaway.com 2018 Annual Report dated 13 March 2019.

(6) Just Eat 2018 organic revenue growth based on revenue, adjusted for the HungryHouse acquisition, reported in Just Eat 2018 Annual Report dated 25 March 2019. Just Eat order frequency based on 2018 active customers and orders reported in Just Eat 2018 Annual Report dated 25 March 2019. Takeaway.com order frequency based on 2018 active customers and orders reported in Takeaway.com 2018 Annual Report dated 13 March 2019.

(7) A J.P. Morgan report dated 29 July 2019 estimates a value of £1bn for Just Eat’s stake in iFood.

(8) 2020 consensus revenue estimate for Takeaway.com according to S&P Capital IQ as of 25 November 2019.

(9) Takeaway.com share price according to S&P Capital IQ as of 25 November 2019. Takeaway.com shares outstanding and net debt according to Takeaway.com 2019 interim results dated 31 July 2019. Normalized free cash flow multiple assumes an effective tax rate of 25%. Takeaway.com organic revenue growth based on revenue, adjusted for 10bis and Delivery Hero Germany acquisitions, reported in Takeaway.com 2019 interim results dated 31 July 2019.

(10) Takeaway.com 1H19 EBITDA margin based on revenue and EBITDA reported in Takeaway.com 2019 interim results dated 31 July 2019.

(11) “We believe it is realistic to expect that Germany, which is already more than double the size of our Netherlands’ business, will over time trend towards the Dutch EBITDA margin.” – Takeaway.com CEO Jitse Groen (25 November 2019)

DISCLAIMER

Cat Rock Capital Management LP and certain of its affiliates and controlling persons (collectively, “Cat Rock Capital”), is publishing this letter solely for the information of other shareholders in Just Eat plc. This letter is provided merely for general informational purposes and is not intended to be, nor should it be construed as (1) investment, financial, tax or legal advice, or (2) a recommendation to buy, sell or hold any security or other investment, or to pursue any investment style or strategy. Neither the information nor any opinion contained in this letter constitutes an inducement or offer to purchase or sell or a solicitation of an offer to purchase or sell any securities or other investments in Just Eat plc (“Just Eat”), Takeaway.com N.V. (“Takeaway.com”), or any other company by Cat Rock Capital or any fund or other entity managed directly or indirectly by Cat Rock Capital in any jurisdiction. This letter does not consider the investment objective, financial situation, suitability or the particular need or circumstances of any specific individual who may access or review this letter and may not be taken as advice on the merits of any investment decision. Any person who is in any doubt about the matters to which this letter relates should consult an authorised financial adviser or other person authorised under the UK Financial Services and Markets Act 2000. To the best of Cat Rock Capital’s ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources that Cat Rock Capital believes to be accurate and reliable. However, such information is presented “as is”, without warranty of any kind, whether express or implied. All expressions of opinion are subject to change without notice, and Cat Rock Capital does not undertake to update or supplement any of the information, analysis and opinion contained herein. This letter, and its content, distribution and use, is subject to the terms specified at www.JustEatMustDeliver.com.

FORWARD LOOKING STATEMENTS

This letter contains certain forward-looking statements and information that are based on Cat Rock Capital’s beliefs, as well as assumptions made by, and information currently available to, Cat Rock Capital. These statements include, but are not limited to, statements about strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements that are not historical facts. When used herein, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “project” and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual results, performance or achievements may vary materially and adversely from those described herein. There is no assurance or guarantee with respect to the prices at which any securities of Just Eat, Takeaway.com, or any other company will trade, and such securities may not trade at prices that may be implied herein. Any estimates, projections or potential impact of the opportunities identified by Cat Rock Capital herein are based on assumptions that Cat Rock Capital believes to be reasonable as of the date hereof, but there can be no assurance or guarantee that actual results or performance will not differ, and such differences may be material and adverse. No representation or warranty, express or implied, is given by Cat Rock Capital or any of its officers, employees or agents as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, targets, prospects or returns contained herein. Any historic financial information, projections, estimates, forecasts, targets, prospects or returns contained herein are not necessarily a reliable indicator of future performance. Nothing in these materials should be relied upon as a promise or representation as to the future.

PERMITTED RECIPIENTS

In relation to the United Kingdom, this letter is being issued only to, and is directed only at, (i) investment professionals specified in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the “Order”), (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iii) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities of Just Eat or any member of its group may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “Permitted Recipients”). Persons who are not Permitted Recipients must not act or rely on the information contained in this letter.

DISTRIBUTION

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws of that jurisdiction.

Contacts

Investor Contact
Cat Rock Capital
+1 (203) 992-4630
info@catrockcap.com

Media Contact
Kepler Communications
Charlotte Balbirnie
+44 (0) 7989 528421
CBalbirnie@keplercomms.com

Release Summary

Cat Rock Capital sent an open letter to Just Eat shareholders urging them to accept the Takeaway.com offer.

Contacts

Investor Contact
Cat Rock Capital
+1 (203) 992-4630
info@catrockcap.com

Media Contact
Kepler Communications
Charlotte Balbirnie
+44 (0) 7989 528421
CBalbirnie@keplercomms.com