Just Eat Takeaway buying Grubhub for $10.2b

NEW YORK • Europe's Just Eat Takeaway.com has agreed to acquire US-based Grubhub for US$7.3 billion (S$10.2 billion), as the coronavirus pandemic drives a surge in orders.

Amsterdam-based Just Eat Takeaway said it will pay US$75.15 a share for Grubhub in an all-stock deal.

The move detailed on Thursday catapults Just Eat Takeaway into one of the world's largest food delivery companies and, according to JPMorgan Chase & Co, gives it the coveted No. 2 spot in the brutally competitive US market.

The deal will put Just Eat Takeaway slightly ahead of Uber Technologies, whose own efforts to buy Grubhub snagged on price and antitrust concerns.

Grubhub will launch Just Eat Takeaway in the US market, broadening its already global reach that includes Australia, Brazil and Canada, in addition to its home base in Europe.

Mr Jitse Groen, the Dutch billionaire who created Takeaway in 2000 in his university dormitory room, has been looking to expand aggressively over the past year.

Less than two months ago, Takeaway received antitrust clearance from Britain for its US$8 billion acquisition of Just Eat.

With the ink barely dry on that deal, Mr Groen may be biting off more than he can chew with his US foray, some fear.

When asked about the timing of the deal so close on the heels of another mega transaction, Mr Groen told analysts and investors on a conference call on Thursday: "If you ask me, something like this should have happened three years ago, but I wasn't the CEO of Just Eat back then."

Previous mergers made the deal attractive to Grubhub, he said.

Still, the US market with its sliver-thin margins from an all-out price war between Uber Eats and market leader DoorDash has created a "bloodbath", according to ABN Amro analyst Wim Gille.

There is no protection for drivers' incomes, restaurants have to pay high fees and customer experience is poor, he said.

With those concerns in mind, some Just Eat Takeaway investors gave the deal a thumbs down.

Since Mr Groen's talks with Grubhub leaked yesterday on CNBC, Just Eat Takeaway shares have dropped about 15 per cent.

In the longer term, however, size is what may determine who thrives in the industry, Mr Gille said.

Grubhub's chief executive Matt Maloney helped start the company in 2004. He first met Mr Groen a few years later.

They describe one another as kindred spirits. "We have the same company on different continents," Mr Maloney said on Wednesday. "There's this mutual cosmic alignment."

Just Eat Takeaway said Mr Maloney will join the board and run the North America business.

In 2013, Mr Maloney led a merger of Grubhub and Seamless to create what was then a dominant food delivery website.

But the company has fallen far since then.

DoorDash, the current leader in the US, and Uber have eaten up market share, leaving Grubhub with 23 per cent as of the end of April, according to market research firm Second Measure.

Food delivery has been one of the few sectors to benefit from the pandemic this year, thanks to people spending more time at home.

Grubhub's stock is up 39 per cent since the World Health Organisation declared a pandemic in March, though it is still trading at less than half of its peak in 2018.

Profit margins are tight or non-existent in food delivery due to stiff competition to sign the most popular restaurants and add customers.

Gross food sales for Grubhub rose 8 per cent to US$1.6 billion in the first quarter, and the company reported a net loss of about US$33 million.

Uber's gross bookings for food delivery increased 52 per cent to US$4.68 billion in the same period, but the division's losses also rose.

Analysts have long said the unprofitable model in food delivery is unsustainable and expected consolidation.

BLOOMBERG