The offer of American depositary receipts (ADRs) representing 0.6710 Just Eat Takeaway.com ordinary shares for each Grubhub share represents an implied value of $75.15 apiece, versus a close price of $59.1 overnight, and would mean Grubhub shareholders own around 30% of the enlarged group.
Coming just a few months after the February merger of UK and Canada-focused Just Eat with Germany and Netherlands-based Takeaway.com, the announced deal to catapult JET into the US is expected to complete in early 2021 with approval needed from approval from 50%-plus-one shareholders.
“A combined Just Eat Takeaway.com and Grubhub will become the world's largest online food delivery company outside of China, with strong brands connecting restaurant partners with their customers in 25 countries,” the two companies said in their respective statements.
Both companies published strong trading statements, with JET reporting order growth of 41% in April and May after only 21% in the first quarter of.
A combination would increase the group's ability to invest and strengthen its competitive positions in all its markets, the pair added.
Uber had also been in talks with Grubhub. An Uber spokesman said: “Like ridesharing, the food delivery industry will need consolidation in order to reach its full potential for consumers and restaurants. That doesn’t mean we are interested in doing any deal, at any price, with any player.”
Reports of the deal emerged late on Wednesday and saw JET shares fall 15% and by late Thursday morning were pretty much flat at 7,624p.
“We are surprised by this move given the competitive environment in the US (four players) and limited immediate synergies. However, despite the premium, our pro-forma EBITDA numbers conclude double-digit FCF accretion.
"JET CEO Jitse Groen will bring what GrubHub has been lacking in the past – better execution on tech and consumer experience and a stronger focus on improved delivery economics.”
Analysts at AJ Bell added: “Doing too much too fast can backfire and parking two businesses together is always harder than boardrooms anticipate. Synergies are often over-estimated and integration tasks under-estimated, not to mention the potential for culture clashes.”
They added: “Competition is fierce in the online food ordering and delivery sector and it does seem as if there are too many players. While they are serving a growing market, arguably you need scale in order to make a profit. Just Eat Takeaway is therefore on a land grab mission.
“Lockdown measures around the world will have accelerated demand for online food ordering. However, the risk of widespread unemployment could have a negative impact in the coming months and almost certainly in 2021 if households are having to watch their spending.
“Ordering takeaway food is a luxury that many people won’t be able to afford if they are out of work. Just Eat Takeaway will have to ride through this likely difficult patch and its move on Grubhub is more about setting itself up for the long term.”
The initial UBS take was to focus on the "limited synergies in a highly competitive market, at a time when JET is busy integrating Just Eat assets and taking on competition" in the UK, France, Italy and Spain.
"We do however recognize the opportunity is large by taking on the US market," UBS analysts said, adding that JET's management would be likely to have the flexibility to redeploy around €380mln in underlying profits expected in the next financial year from the current business in the US, and "likely benefit from the shift in mindset in the industry away from 'growth at all costs'."
"Still, the US remains one of the most competitive markets globally, which will likely entail a cycle of investments for the combined group with uncertain outcomes."
--Adds shares and broker comment--