June 11, 2020 / 7:13 AM / a month ago

Just Eat Takeaway's $6 billion Grubhub grab tests growth limits

AMSTERDAM/LONDON (Reuters) - Just Eat Takeaway said on Thursday its proposed $6 billion takeover of Grubhub to create a trans-Atlantic giant would give it the upper hand in the online food delivery market, where competitors are scrambling for share.

FILE PHOTO: Signage for Just Eat is seen on the window of a restaurant in London, Britain, August 5, 2019. REUTERS/Toby Melville.

Buying Grubhub (GRUB.N) would see Jitse Groen, Takeaway’s (TKWY.AS) 42-year-old CEO, become head of the world’s biggest food delivery business outside China, ahead of Uber Eats (UBER.N), which yesterday walked away from buying the U.S. firm.

Groen has only just received antitrust approval for Takeaway’s all-share acquisition of larger British rival Just Eat, which beat a rival cash bid from tech giant Prosus.

Takeaway competes with Uber Eats, Deliveroo and Delivery Hero in Europe, while in the U.S., Grubhub faces Doordash, Uber and Postmates. All made losses in 2019.

“There are quite some players currently in the food delivery market that are burning cash” to push out competitors, Groen said Thursday, defending the deal.

“It’s pretty obvious to us that as long as we are large, (profitable at an operating level), and very dominant in the markets that actually matter, that cannot happen to us.”

(GRAPHIC - Takeaway M&A deals since late 2018: here.png)

Groen, who started Takeaway in his attic while still a student in 2000, argues that online food ordering is a “winner-takes-most” market, as the more restaurants sign up to one platform, the more likely customers are to use it.

Shares in Just Eat Takeaway were 1.6% lower at 84.16 at 1443 GMT, after closing more than 13% lower in Amsterdam ahead of the deal’s announcement on Wednesday.

Grubhub shareholders would receive $64.14 per share at current prices, an 8% premium to its closing price on Wednesday. Grubhub shares rose 5.5% to $62.30 in early trading Thursday.

“We do not rule out a hostile counterbid for Grubhub,” said Barry Norris, fund manager at Argonaut Capital Partners, which owns shares.

“We also think that this deal merely delays the inevitable longer-term consolidation of the U.S. market.”

Analyst Hubert Jeaneau of UBS said that Takeaway should be able to help Grubhub strategically.

“Still, the U.S. remains one of the most competitive markets globally, which will likely entail a cycle of investments for the combined group with uncertain outcome,” he said in a note.

In a trading update on Wednesday, Takeaway said order growth was up 41% in April and May from the same period a year ago, as the coronavirus outbreak led to a surge in use of online food services. Grubhub said its orders were up 23%.

Reporting by Toby Sterling, Paul Sandle, Simon Jessop, and Tommy Lund; Editing by Catherine Evans, Alexander Smith and Jan Harvey

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