Just Eat sells Grubhub at a $6.5bn loss

Just two years after the purchase, Just Eat formally put the business back up for sale amid pressure from activist investors, high taxes and a squeeze from the cap on delivery fees in New York City.

• Just Eat Takeaway feeds Waitrose’s appetite for rapid deliveries

At the start of the year Jitse Groen, Just Eat’s chief executive, warned that the mergers and acquisitions environment was “very difficult’ in the United States given the lack of activity in the sector.

Groen, 46, said the deal “delivers the right home for Grubhub and its employees.” He added that the sale will increase the cash generation capabilities of the business and accelerate growth.

JP Morgan, which had argued for a valuation of about $1.2 billion for Grubhub in the past, said that the market would view the long-awaited deal as positive even at a lower valuation.

Shares in the Amsterdam-based Just Eat, which have fallen by more that 85 per cent since early 2020, jumped by more than 21 per cent during early dealings on Wednesday before paring some early gains to close up 139p, or 14.7 per cent, at £10.80.

Lore, who founded Wonder in 2018, said: “Wonder’s acquisition of Grubhub continues our mission to make great food more accessible. We’re excited to soon offer a curated selection of Grubhub’s restaurant partners directly in the Wonder app, alongside our owned and operated restaurants and meal kits.”

Analysts at Panmure Liberum said the deal was “unalloyed good news”, adding that the disposal boosted the prospects for Just Eat’s free cashflow generation. Sean Kealy said: “Grubhub was a shrinking business in a growing market that [Just Eat] couldn’t afford to support. Its absence will free up some cashflow for other purposes.”

Silvia Cuneo, an analyst at Deutsche Bank, believes the sale not only “addresses the market’s perception of Grubhub as a drag on Just Eat’s valuation,” but also removed a significant obstacle” in the company’s growth trajectory.

Just Eat, formed four years ago from the merger of Just Eat and Takeaway.com, its Dutch rival, has its headquarters in Amsterdam and operates in countries including Germany, Canada, Australia, France, Spain and Israel. The company reported a net loss after tax of €1.85 billion last year after booking a €1.06 billion impairment against its American business.

It expects its gross transaction value, the total value of all goods sold, to increase by between 2 per cent and 6 per cent in the coming year, although that excludes North America.

In its third quarter, Just Eat said it received a total of 211.1 million orders, fewer than the 214.2 million analysts had forecast. The company’s total gross transaction value, the total value of all goods sold including North America, fell by 3 per cent to €6.34 billion.

Six disastrous mergers that cost billions

Time Warner-AOL

Shareholders were left nursing losses of $200 billion from the doomed merger of Time Warner, the media powerhouse, and AOL, the world’s largest provider of internet at the turn of the century. The merger was predicated on combining Time Warner’s book, magazine and television production business with AOL’s internet subscriber base of 30 million. Yet, the deal started unravelling as the US fell into recession, the dot-com bubble burst, and the group fell to a loss of $98.7 billion, the worst annual loss in US corporate history.

Vodafone-Mannesman

Vodafone created a telecom giant when it sealed a £112 billion all-share deal to buy Mannesmann, the Germany industrial conglomerate, at the height of the internet boom in 2000. Yet, the deal incurred huge losses after it was completed, with one-off costs of more than £20 billion, and the lengthy period of hostile talks led to tens of millions in legal fees. The controversy also prompted an investigation of breach-of-trust allegations concerning bonuses which were handed out by Mannesmann’s supervisory board, and Vodafone’s share price has dwindled in the decades since, falling from a peak of 399p in the year of the deal, to its current level of around 69p.

Microsoft-Nokia

Nokia phones were once the most sought-after handsets in the mobile market, but the group’s standing in the sector was almost entirely wiped out when its phone business was bought by Microsoft for $7.2 billion in 2013. Microsoft had pledged an uplift in investment for Finland’s technology sector on the back of the acquisition, but as Apple and Android rose to prominence and Satya Nadella, Microsoft’s chief executive, declared he was not interested in devices, the merger soured, and Nokia’s phone unit was written off as a tax loss.

Lloyds-HBOS

Gordon Brown struck a deal for the rescue of HBOS at a cocktail party at the height of the financial crisis by promising Sir Victor Blank, then chairman of Lloyds TSB, that competition concerns would not stand in the way of a deal. The conversation would become infamous for consummating a disastrous marriage when it later emerged that the gap between loans and deposits was £213 billion. Lloyds would go on to shock the City by revealing £11 billion of losses at HBOS in February 2009.

RBS-ABN Amro

Johnny Cameron, former head of the investment banking division of the Royal Bank of Scotland, has described “a sense of complacency” within the lender in the lead-up to its disastrous £49 billion acquisition of ABN Amro in 2007. The deal was the culmination of years of expansion for RBS but then the financial crisis hit, prompting state bailouts for the UK banking sector. It was later described as the wrong deal, at the wrong price and the wrong time.

Wm Morrison-Safeway

The Safeway brand was a staple on the British high street before it was acquired by Morrisons for £3 billion in 2004. The merger ran into trouble in the months following its completion when Morrisons warned on profits owing to poor performance in Safeway’s stores. Morrisons sought to address the rot by cutting Safeway’s prices, but the combined group lost market share to Tesco and the cost of the deal led Morrisons to record the first loss in its history in 2005.