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Just Eat vs. Cat Rock: Inside the investor battle that's made takeaway business a deal target

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A sign for Just Eat, a food delivery service can be seen above a restaurant in London on December 18, 2017. Photo: BEN STANSALL/AFP/Getty Images

Is takeaway specialist Just Eat (JE.L) about to get taken out?

US hedge fund Cat Rock Capital Management on Monday called for the company to merge with a rival to solve its current leadership issues. Just Eat is dismissive of the suggestion.

But the agitation is emblematic of a difficult relationship between Just Eat and its investors over the last year and threatens to spiral unless Just Eat acts quickly. The last time Cat Rock publicly called for changes, Just Eat lost its CEO.

‘A fast-moving space’

Peter Plumb left Just Eat as CEO on 21 January, in part after Cat Rock called for a change in strategy last December. Plumb joined from Moneysupermarket.com and oversaw a 30% share price decline in 2018. Cat Rock, which has a 2% stake in Just Eat, voiced a wider unhappiness among shareholders.

Greenwich, Connecticut-based Cat Rock now wants the company to appoint a CEO with experience with the online takeaway sector.

Yahoo Finance UK understands Cat Rock has suggested two candidates and a consultant with online takeaway experience to be involved in the process. All three have yet to be included by Just Eat.

The lack of action has put Cat Rock CEO and founder Alex Captain’s nose out of joint. The money manager said he doesn’t trust the board’s judgement after Plumb. Cat Rock is concerned that Just Eat will make the same mistake again with Peter Duffy, the current interim CEO, who joined the takeaway company from easyJet last May and is understood to be in the running for the permanent job.

“In a fast-moving space like online food delivery, an executive who is trying to learn the business cannot effectively lead the business,” Captain wrote in Monday’s letter.

Plumb left only three weeks ago and it is not unusual for CEO searches to take months. Just Eat declined to comment on the process, but headhunting is understood to be in the early stages.

‘A high degree of M&A’

Captain argued that the best plan of action right now is to find a rival with a strong management team and merge the two businesses.

Captain floated Takeaway.com (TKWY.AS) as a potential partner, a move that some may see as cynical — Cat Rock also has a 5% stake in that business. But Captain stressed on a call with analysts on Monday that he was open to a range of possible partners. Other industry peers include DoorDash, GrubHub (GRUB), and Postmates.

A merger proposal may be well received elsewhere in the industry. Increasing competition from UberEats and Deliveroo, both of whom have deep pockets, have left companies chasing deals in a bid for scale. Takeaway.com recently made acquisitions from Delivery Hero (DHER.F) and there have even been talks of a Uber and Deliveroo tie-up.

“The overwhelming view is that the space will likely see a high degree of M&A in the coming months,” JPMorgan analyst Marcus Diebel wrote in a note at the beginning of February.

“Many investors agree with our view that Just Eat displays an attractive valuation and M&A optionality.”

Communication is key

Just Eat shares rallied over 4% on Monday, suggesting investors are excited by the deal talk. The key question is whether Cat Rock can garner enough support to push the board to change its mind.

The hedge fund after all does not even appear in the company’s top 10 share register and Just Eat appears to be trying to contain Cat Rock.

A Just Eat spokesperson told Yahoo Finance UK: “We take communications with all our shareholders extremely seriously. As announced previously, we are carrying out a thorough CEO appointment process and we will update the market as appropriate.”

Just Eat sees the company as just one of many shareholders and is reluctant to engage unfairly with Cat Rock. While it talks to the company regularly, a recent offer to meet with Cat Rock’s representatives in London was rebuffed.

Communication will be key. Many in the City think Just Eat’s biggest problem to date is its failure to properly enact its strategy and manage investor expectations.

“Just Eat’s management said nothing in response to Deliveroo’s announcement last year that they were investing heavily into the UK,” Grant Fuller, the CEO of AI investor sentiment tool Irithmics, told Yahoo Finance UK.

“When Just Eat’s management didn’t provide any reassurances that they weren’t put off by competition from Deliveroo, their investors reacted negatively,” Fuller said, commenting on what his software viewed in changed to investor portfolios at the time. “Investors even dithered for a week, most likely waiting for management.”

Cat Rock Capital held a call with analysts on Monday morning to outline its strategy and answer questions. As of Monday afternoon, the same analysts had yet to hear from Just Eat.

Just Eat will be hoping that actions speak louder than words when it delivers full-year results on 6 March. If investors are still not convinced, the next crunch point will be the company’s AGM in early May.

Cat Rock’s Captain will no doubt be drafting his letters in preparation.

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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