Prosus, through its wholly-owned subsidiary MIH Food Delivery Holdings, upped its offer from £7.20 cash per Just Eat share to £7.40, to try to entice more Just Eat shareholders to sell their shares.
Announcing the higher offer, Prosus said that the £7.40 per share represents a premium of nearly 26% to the ruling market price of Just Eat on October 21 when Prosus made its first offer.
The cash offer is also still 25% better than the alternative offer from Takeaway.com, which offered to acquire Just Eat in a share-based transaction.
The new offers values Just Eat at a hefty £5.1 billion, equal to nearly R98.3 billion.
What really makes the revised offer interesting – and improves its chances of success – is that Prosus also revisited an important condition of the offer that lowers the number of shareholders who need to accept the offer to push the deal through.
In terms of the original offer, Prosus required enough shareholders to accept the offer to give Prosus an interest of 75% in Just Eat. Basically, all the minority shareholders would have had to accept the offer for Prosus to get its 75%.
This requirement actually rendered moot several of the arguments put forward by Prosus to try to convince shareholders to sell their shares. For instance, Prosus raised a lot of arguments to prove how much better off Just Eat would be to partner with Prosus instead of with Takeaway.com.
None of the arguments matter to Just Eat shareholders if they sell all their shares. The only reason they had to consider when making a decision was that they would get cash and reduce exposure to what could be a risky investment.
Meanwhile, the cash option is still on the table and it’s a bit better than what it was a few weeks ago.
In addition, the fact that Prosus decided to reduce the minimum threshold of acceptance to get only 50% and one share to gain effective control of Just Eat makes the whole range of arguments valid. Shareholders can now consider all the arguments of how Prosus will make a big success of Just Eat. They might decide to sell 50% of their shares to bank the healthy premium and still stay for the ride with Prosus, while investors who are more risk averse can sell out at a good price and look for other investments.
Prosus CEO Bob van Dijk indicated that the offer was revised after consultation with Just Eat shareholders.
“Following the announcement of our offer, we have had the opportunity to listen to the views of Just Eat shareholders, share our perspective on the global food delivery sector and reflect on the challenges Just Eat faces,” says Van Dijk.
The new offer and the change in one of the key conditions might mean that the consultation with shareholders verged on negotiations and that the revised offer is more acceptable to some of the key shareholders.
Prosus noted in the new offer documentation that it continues to believe Just Eat is an attractive business, albeit one that requires large investment to build up its own delivery capacity, rather than relying on restaurants’ existing delivery mechanisms.
Management noted in the documents published early Monday morning that the Just Eat board of directors has now also acknowledged this. “The Just Eat board has now acknowledged that increased investment is required and that this ‘may impact’ profitability,” according to Prosus.
This “acknowledgement” is contained in a document published by Just Eat on November 25, in which the Just Eat board is still urging its shareholders to accept the Takeaway.com offer.
Interestingly, the Just Eat board points out to its shareholders that they enjoyed huge returns on their investment during the last few years, while the dealmakers on Prosus’s payroll say that the only reason why the Just Eat share price is so high is due to the take-over offer.
They say that the statement in which Just Eat warns of the requirement of further investment in the business was made after Prosus’s offer and it is not reflected in the current share price, which they say is currently only supported by the possibility of a corporate transaction.
The share increased sharply from £5.89 the day before the Prosus offer to £7.76 last Friday. It increased further right after Prosus announced its revised offer on Monday morning, to reach a high of £785 before easing to £780 per share.
Prosus argues that the share price was actually in danger of declining, given the fundamentals of the business with its existing strategy. It points to slower growth in Just Eat’s order number in the UK and a significant decrease in operating margins, as announced in the latest quarterly results for the three months to September.
Just Eat’s results showed that orders increased by only 8% from a year ago compared with nearly 31% per annum only a few years ago, while operating margins decreased from more than 51% to 35%. “Just Eat has lost its leading position in five of its 13 markets,” according to the latest offer documentation.
Nevertheless, Prosus remains optimistic that Just Eat is a good business. It believes that the company just needs a good partner.
“We have demonstrated in Brazil that, if you act decisively and invest effectively in technology and in own delivery, you can build an attractive growth business that is equipped to win in the long term,” says Van Dijk.
Van Dijk says that Prosus management also spent time talking to its own shareholders to keep them abreast of developments. “We have also had extensive discussions with our own shareholders with regards to our long-term strategy for food delivery and Just Eat’s role within that. We continue to believe in the sector.”
Prosus reiterated that it has enough capital to digest the deal and that potential returns over the long term justify the investment. The date for acceptance of the new offer has been extended to December 27.
“Following careful consideration and in the interest of bringing the process to a close, Prosus has decided to increase its offer, whilst also reducing its acceptance condition to a simple majority. Prosus believes that the increased offer underscores its commitment to the transaction and constitutes attractive and certain value for Just Eat Shareholders, while allowing Prosus to target appropriate risk-adjusted returns for its own shareholders,” concludes the latest communication to investors.