GREENWICH, Conn.--(BUSINESS WIRE)--Cat Rock Capital Management LP, a long-term oriented investment firm and beneficial owner of approximately 17.7 million shares of the common stock of Just Eat plc (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.