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StockBeat: Just Eat Battle Heats up as Prosus, Takeaway Raise Offers

By Geoffrey Smith -- The battle for Just Eat (LON:JE) is going down to the wire.

The two companies bidding for the U.K.-based online restaurant platform both increased their offers on Thursday, ahead of a December 27th deadline for shareholders to signal which (if either) of the two bids they want to accept.

That pushed Just Eat’s stock briefly to a five-month high on Thursday, although it had settled into a range around the 800 pence a share mark by mid-morning in London.

That level of 800p corresponds exactly to the improved cash offer from Prosus (AS:PRX), the Internet holding company spun off by South Africa’s Naspers Ltd (JO:NPNJn). Prosus on Thursday raised its offer from an initial bid of 710p.

However, Just Eat’s board has so far favored the rival approach from Dutch-based Takeaway.Com (AS:TKWY), whose offer, while notionally higher, is an all-stock one.

Takeaway had initially offered Just Eat shareholders 52.1% of the combined group, but on Thursday improved that offer to 57.5%. That translates into a price of 916p at Thursday’s closing price for Takeaway.

For investors, it boils down to a choice between hard cash up front from Prosus and the promise of further growth from Takeaway. Cat Rock Capital, which owns 3% of Just Eat and is also a shareholder in Takeaway, has thrown its weight behind the latter, calling it a “fantastic win-win” for shareholders of both Takeaway and Just Eat.

“Just Eat shareholders will meaningfully participate in the tremendous upside of the combined business, while shareholders significantly increase the scale of their company at a compelling value,” Cat Rock founder Alex Captain said in a statement. “ is buying a business with over 2.5x its revenue at approximately 50% of its own valuation.”

Although the tweak to the exchange ratio has weighed on Takeaway’s share price in the last 24 hours – it’s fallen to 78.80 euros from 88.90 before the announcement - Cat Rock’s Captain said the shares had 50% upside over the next 12 months, using a historic average multiple of 7.5 times forward revenue.

Prosus, by contrast, warns that the share prices of both fail to reflect the heavy investment needed to roll out fuller delivery services. That warning that assumes the European market will follow the U.S. one in forcing high-margin platform-only companies to incorporate delivery into their offerings, permanently raising their cost bases and squeezing their margins.

It cites the doleful experience of Grubhub (NYSE:GRUB) as proof. Grubhub's shares fell over 40% in October after it issued a profit warning, although they have recouped more than half of those losses since.

Takeaway and Just Eat reject the parallel.

Elsewhere in European markets on Friday, the benchmark Stoxx 600 rose 0.3% to 416.06 by 5 AM ET (1000 GMT), within half a percent of its all-time high. The Italian FTSE MIB led the way with a 0.7% gain, while the U.K. midcap FTSE 250 lagged as the market reined in its expectations for the U.K. economy next year – a year that set to be dominated by post-Brexit trade talks with the EU.

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