The Just Eat (LSE: JE) share price has climbed 28% since the most recent takeover offer from Prosus, against the background of a possible merger with Takeaway.com and as the form of consolidation (if any) seems to be up in the air again.
Just Eat and Takeaway.com had agreed terms in August, but South Africa’s Prosus then came up with a rival bid offering 710p cash per share.
Price sliding
The all-share merger with Takeaway.com has started to look less attractive as that company’s share price has been sliding back since August, and Monday’s update from Prosus did not raise its original offer.
The Just Eat board says it “continues to believe that the Prosus Offer significantly undervalues Just Eat both on a standalone basis and as part of the proposed recommended all-share combination with Takeaway.com” and unanimously recommends a shareholder rejection.
While the Prosus offer might not be to the liking of the Just Eat board, and the offer is below the current share price, it does have one possible advantage. It’s an all-cash offer, and it could provide a way for big investors who got in a few years ago before the Just Eat price climbed to cash in on their profits.
Undervalued bid?
It also offers certainty, where an all-share merger with Takeaway.com would still face the uncertainties surrounding growth companies in their early stages. And after Takeaway’s share price fall, CEO Jitse Groen responded to Monday’s update from Prosus with the admission: “Given the circumstances, I can fully understand that the current cash values of both our and the competing offer aren’t particularly appealing to the Just Eat shareholders, and seem to be quite far removed from the fair value of Just Eat.”
He did add that the proposed deal “brings together strong and adjacent market positions and provides Just Eat shareholders the opportunity to share in the significant value creation which would be expected from the merger of these two market leaders,” but I can understand Just Eat shareholders really not knowing what to make of things right now.
Decision time
What would I do? A few things come to mind. First up is that in an emerging market like home food deliveries, it’s very hard at first to guess at which entrants will come to dominate the business and which will fall by the wayside. With its growing profitability over the past five years, I think Just Eat is easily over that hurdle and I see its future success as close to assured.
The other is that the business was always going to go through a consolidation period, and that’s one way in which early investors can take their profits. Saying that, I would never invest in the hope of a takeover, but only on the underlying fundamentals of a business itself.
My take on Just Eat shares is based solely on the company itself and not on whatever happens with Prosus or Takeaway.com. On that score, high valuations make me feel we could be in for a period of share price weakness. I’d wait and see.