[December 02, 2019]

Cat Rock Capital Sends Open Letter to Just Eat Shareholders Regarding Prosus Offer

Cat Rock Capital Management LP (together with its affiliates, "Cat Rock Capital"), a long-term oriented investment firm and beneficial owner of approximately 17.7 million shares of the common stock of Just Eat plc ("Just Eat" or the "Company") (LSE: JE), representing circa 3% of Just Eat's outstanding shares, today sent an open letter to Just Eat shareholders. Cat Rock Capital urges Just Eat shareholders to accept the Takeaway.com NV ("Takeaway.com") offer and reject the Prosus NV ("Prosus") offer, consistent with the unanimous recommendation of the Just Eat Board.

Alex Captain, Founder and Managing Partner, Cat Rock Capital Management LP, commented:

"While we are pleased that Prosus has bid for Just Eat, we are deeply disappointed with both the level of their offer and their approach to the bidding process.

"Instead of offering a fair price for Just Eat, Prosus has made a number of claims about Just Eat and Takeaway.com aimed at convincing shareholders not to support their merger.

"Today we published an open letter assessing the credibility of the Prosus claims. We hope that Just Eat shareholders find this open letter helpful as they decide on a course of action.

"As we have said previously, the Prosus offer of 710p per share is not remotely close to our assessment of fair value for Just Eat. We think a Prosus bid needs to be at least 5.0x 2020 consensus revenue, or 925p per share, in order to compete with a Takeaway.com merger that we believe could comfortably be worth 1,200p per share by the end of 2020.

"Moreover, we believe there is a significant risk that Prosus will reduce the acceptance threshold of its offer to 50% and one share. If this occurs, Just Eat shareholders who choose not to accept the Prosus offer will be faced with the prospect of becoming minority shareholders in a publicly-traded entity with majority Prosus ownership. Therefore with a 50% threshold, Just Eat shareholders could feel compelled to accept a Prosus bid that is substantially below fair value, particularly if merger arbitrage funds continue to increase their ownership of Just Eat stock.

"We urge other Just Eat shareholders to join us in accepting the Takeaway.com offer that the Just Eat Board has unanimously recommended."

The full text of Cat Rock's letter is included below and is also available at the following website: JustEatMustDeliver.com

AN OPEN (News - Alert) LETTER TO JUST EAT SHAREHOLDERS

2 December 2019

Fellow Just Eat Shareholder:

Takeaway.com and Prosus have now both presented formal offers to Just Eat shareholders, and they clearly disagree about the prospects for Just Eat's business. Prosus believes that its 710p per share offer represents 'attractive and fair' value for what they seem to believe is a challenged business. In contrast, Takeaway.com believes that Just Eat is one of the most valuable global profit pools with a strong business that will only require 'tens of millions of euros' of investment.⁽¹⁾

We think Prosus is wrong about Just Eat, and we strongly encourage Just Eat shareholders to join us and the Just Eat Board in supporting the Takeaway.com merger.

The Prosus Prescription

Prosus claims that 710p per share is an 'attractive and fair' price because of the 'substantial investment' required at Just Eat. We believe that Prosus cannot justify a fair price for Just Eat because it lacks a credible plan for winning in the UK.

Amazingly, Prosus is proposing to make no 'material changes to Just Eat's existing executive management' even though interim CEO Peter Duffy has already ruled himself out of the permanent CEO role.

Moreover, the 'Prosus Prescription' of throwing money at the UK market under existing management has already been proven unsuccessful. In the first half of 2019, Just Eat's UK EBITDA margins contracted from 49% to 35% as it invested heavily in logistics.⁽²⁾ Despite these investments, Just Eat's organic UK order growth fell from ~15% in the first half of 2018 to only ~8% in the third quarter of 2019.⁽³⁾ It must be clear to Prosus that 'substantial investments' without experienced management will not solve Just Eat's problems.

Fact-Checking Prosus Claims

Instead of presenting a credible plan for winning in the UK, Prosus has tried to cast doubt on Takeaway.com's plan. We think Prosus is wrong about Just Eat's prospects and Takeaway.com's ability to generate value for Just Eat shareholders.

Prosus argues that Takeaway.com is underestimating the cost of building a strong logistics business in the UK. We think Prosus willfully ignores critical facts in making this claim. Takeaway.com increased logistics orders in the Netherlands from 2.7% in the first half of 2018 to 4.6% in the first half of 2019.⁽⁴⁾ Over this period, Takeaway.com grew EBITDA +15% in absolute terms despite providing logistics orders to consumers with no delivery fee.⁽⁵⁾ Takeaway.com is clearly succeeding in rapidly growing a logistics business while still growing profits. By contrast, Just Eat also increased the logistics share of its UK orders from low single digits in the first half of 2018 to mid-single-digits in the first half of 2019,⁽⁶⁾ but EBITDA declined -19% and margins contracted from 49% to 35%.⁽⁷⁾ Just Eat has spent much more than Takeaway.com to achieve a similar outcome in terms of logistics order growth. Just Eat has experimented with three different logistics models in the UK and has not reached critical mass with any of them. We think Takeaway.com will be able to reallocate Just Eat's significant spending to grow logistics, instead of requiring massive additional investments.

Prosus also claims that Takeaway.com does not take logistics seriously because these orders represent 4.9% of Takeaway.com's total orders. This claim is also deeply flawed. Logistics orders will naturally represent a smaller portion of the mix in markets where relevant restaurants provide delivery themselves. Our research suggests that the UK, Netherlands, and Germany all fit this profile, with a significant base of restaurants doing their own delivery. In fact, Takeaway.com has subsidized its mix of logistics orders by charging no delivery fee on these orders despite their higher costs. To our knowledge, Takeaway.com is the only online food delivery company globally that offers logistics without a consumer-facing delivery fee.

Prosus cites the struggles at GrubHub in the US as it tries to convince Just Eat shareholders to part with their shares. We think this comparison is deeply misleading. Unlike GrubHub, Just Eat and Takeaway.com are clear market leaders with core positions that are multiple times the siz of the next largest competitor.⁽⁸⁾ Moreover, Just Eat and Takeaway.com operate in markets with a structurally high level of marketplace orders because of the mix of restaurants. Chains with significant bargaining power also represent a smaller share of the total restaurant estate in Europe. Finally, logistics competitors are challenged in Europe because labor costs are high, regulations are more demanding, tipping is much less common, average order values are lower, and consumers are more sensitive to delivery fees. The extremely high quality of the core UK and Dutch markets are reflected in their very high EBITDA margins (2018 margins of 49% in the UK and 54% in the Netherlands), which are dramatically higher than GrubHub's 2018 US EBITDA margins of 15%.⁽⁹⁾

Finally, Prosus argues that the share prices of the comparable peer group for Takeaway.com and Just Eat have fallen significantly since Takeaway.com made its original offer for Just Eat. We think this analysis is deeply flawed because it excludes Meituan and HelloFresh, which appreciated 46% and 82% respectively during the period evaluated by Prosus.⁽¹⁰⁾ Meituan is one of the five major publicly-traded online food delivery companies, and HelloFresh is a clear European online food delivery peer. Instead, Prosus includes a variety of US software companies with no direct relationship to Takeaway.com or Just Eat that had experienced major share price declines including Twilio (News - Alert) (-38%), Pluralsight (-43%), and The Trade Desk (-30%).⁽¹¹⁾ Here again, Prosus provides Just Eat shareholders with deeply misleading information to convince them to sell for a deeply discounted price.

The Takeaway.com Opportunity

We believe that Takeaway.com's offer for Just Eat creates a business worth 1,200p per share by the end of 2020 based on the 2021 consensus revenue forecasts for each company and a multiple of 7.5x forward revenue.⁽¹²⁾ We believe that a 7.5x forward revenue multiple is consistent with historical trading and is supported by reasonable estimates of normalized free cash flow margins.⁽¹³⁾

At the current Takeaway.com share price of approximately €82, investors can buy into this combined entity at 680p per share, which would offer +76% upside.⁽¹⁴⁾ If Prosus buys Just Eat or Just Eat shareholders vote against the Takeaway.com merger, we believe that Takeaway.com continues to be attractively valued at ~27x 2020 normalized free cash flow assuming a 45% normalized margin growing revenue 37% organically in the first half of 2019.⁽¹⁵⁾ Notably, Takeaway.com is currently trading at approximately the same price as it did before the Just Eat deal was announced, suggesting to us that there is little downside if the merger with Just Eat is not completed.

Takeaway.com stock has appreciated meaningfully as the Delivery Hero share sales have ended. We are optimistic that regulators would not allow a Prosus Concert Party like Delivery Hero to initiate a new sale process during the Offer Period.

In short, we believe Takeaway.com offers a compelling risk-reward at these prices regardless of whether the Just Eat merger is completed and have therefore increased our investment in Takeaway.com by almost 40% over the past few months.

Conclusion

Prosus has a strong incentive to convince Just Eat shareholders that Just Eat's problems are deep, structural, and expensive to fix. As described above, we think these arguments are simply wrong.

As long-term shareholders at Just Eat, it is clear to us that Just Eat is a high-quality business that has suffered from the absence of stable, experienced leadership over the past two and a half years. We think the Takeaway.com merger solves this problem by combining forces with perhaps the most well-run online food delivery company in the world.

We therefore urge Just Eat shareholders to join us and the Just Eat Board in accepting the Takeaway.com offer. We would be happy to discuss our views or research with any interested Just Eat shareholders - please contact [email protected] to arrange a call or meeting.

Best Regards,
Alex Captain
Founder and Managing Partner
Cat Rock Capital Management LP

Sidley Austin LLP and White & Case LLP are serving as legal advisors to Cat Rock Capital Management LP.

About Cat Rock Capital Management LP

Cat Rock Capital Management LP is a long-term focused investment firm that manages capital on behalf of pension funds, endowments, foundations, and other institutional investors. It seeks to invest in a select number of high-quality companies, with a long-term approach that emphasizes deep fundamental research. Cat Rock Capital is based in Connecticut, USA and was founded in 2015 by Alex Captain, a former Partner at Tiger Global Management.

Notes:

(1) 'Tens of millions of euros' from Takeaway.com statement dated 12 November 2019.

(2) Just Eat UK segment EBITDA margin based on revenue and EBITDA reported in Just Eat 2019 interim results dated 31 July 2019.

(3) 3Q19 Just Eat organic UK segment order growth reported in Q3 2019 trading update dated 21 October 2019. 1H18 Just Eat organic UK segment order growth reported in Just Eat 2018 interim results dated 31 July 2018.

(4) Takeaway.com Netherlands segment logistics orders as a % of total orders reported in Takeaway.com 2019 interim results dated 31 July 2019.

(5) Takeaway.com Netherlands segment EBITDA growth reported in Takeaway.com 2019 interim results dated 31 July 2019.

(6) Just Eat UK segment logistics orders as a % of total orders based on Cat Rock Capital estimates.

(7) Just Eat UK segment EBITDA growth and margins reported in Just Eat 2019 interim results dated 31 July 2019.

(8) UBS Evidence Lab consumer survey results (19 June 2019); YouGov consumer survey results (January 2019); Cat Rock Capital consumer survey results (4 August 2019); Google (News - Alert) Trends LTM search frequency market share (25 November 2019).

(9) Just Eat 2018 EBITDA margin based on revenue and EBITDA reported in Just Eat 2018 Annual Report dated 25 March 2019. Takeaway.com 2018 EBITDA margin based on revenue and EBITDA reported in Takeaway.com 2018 Annual Report dated 13 March 2019. GrubHub 2018 EBITDA margin based on revenue and EBITDA reported in GrubHub 2018 Annual Report dated 28 February 2019.

(10) According to S&P Capital IQ.

(11) According to S&P Capital IQ.

(12) 2021 consensus revenue forecasts and GBP/EUR exchange rate according to S&P Capital IQ as of 25 November 2019.

(13) Historical trading multiples according to Bloomberg (News - Alert) as of 25 November 2019. Takeaway.com Average TEV / NTM Revenue since IPO = 8.3x, Just Eat Average TEV / NTM Revenue since IPO = 7.2x. Support for historical trading multiples and normalized free cash flow margin estimate available at https://justeatmustdeliver.com/takeaway-offer-valuation.

(14) Based on the TKWY-JE merger exchange ratio of .09744 and an exchange rate according to S&P Capital IQ as of 25 November 2019.

(15) Takeaway.com share price according to S&P Capital IQ as of 25 November 2019. Takeaway.com shares outstanding and net debt according to Takeaway.com 2019 interim results dated 31 July 2019. Normalized free cash flow multiple assumes an effective tax rate of 25%. Takeaway.com organic revenue growth based on revenue, adjusted for 10bis and Delivery Hero Germany acquisitions, reported in Takeaway.com 2019 interim results dated 31 July 2019.

DISCLAIMER

Cat Rock Capital Management LP and certain of its affiliates and controlling persons (collectively, "Cat Rock Capital"), is publishing this letter solely for the information of other shareholders in Just Eat plc. This letter is provided merely for general informational purposes and is not intended to be, nor should it be construed as (1) investment, financial, tax or legal advice, or (2) a recommendation to buy, sell or hold any security or other investment, or to pursue any investment style or strategy. Neither the information nor any opinion contained in this letter constitutes an inducement or offer to purchase or sell or a solicitation of an offer to purchase or sell any securities or other investments in Just Eat plc ("Just Eat"), Takeaway.com N.V. ("Takeaway.com"), or any other company by Cat Rock Capital or any fund or other entity managed directly or indirectly by Cat Rock Capital in any jurisdiction. This letter does not consider the investment objective, financial situation, suitability or the particular need or circumstances of any specific individual who may access or review this letter and may not be taken as advice on the merits of any investment decision. Any person who is in any doubt about the matters to which this letter relates should consult an authorised financial adviser or other person authorised under the UK Financial Services and Markets Act 2000. To the best of Cat Rock Capital's ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources that Cat Rock Capital believes to be accurate and reliable. However, such information is presented "as is", without warranty of any kind, whether express or implied. All expressions of opinion are subject to change without notice, and Cat Rock Capital does not undertake to update or supplement any of the information, analysis and opinion contained herein. This letter, and its content, distribution and use, is subject to the terms specified at www.JustEatMustDeliver.com.

FORWARD LOOKING STATEMENTS

This letter contains certain forward-looking statements and information that are based on Cat Rock Capital's beliefs, as well as assumptions made by, and information currently available to, Cat Rock Capital. These statements include, but are not limited to, statements about strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements that are not historical facts. When used herein, words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "project" and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual results, performance or achievements may vary materially and adversely from those described herein. There is no assurance or guarantee with respect to the prices at which any securities of Just Eat, Takeaway.com, or any other company will trade, and such securities may not trade at prices that may be implied herein. Any estimates, projections or potential impact of the opportunities identified by Cat Rock Capital herein are based on assumptions that Cat Rock Capital believes to be reasonable as of the date hereof, but there can be no assurance or guarantee that actual results or performance will not differ, and such differences may be material and adverse. No representation or warranty, express or implied, is given by Cat Rock Capital or any of its officers, employees or agents as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, targets, prospects or returns contained herein. Any historic financial information, projections, estimates, forecasts, targets, prospects or returns contained herein are not necessarily a reliable indicator of future performance. Nothing in these materials should be relied upon as a promise or representation as to the future.

PERMITTED RECIPIENTS

In relation to the United Kingdom, this letter is being issued only to, and is directed only at, (i) investment professionals specified in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the "Order"), (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iii) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities of Just Eat or any member of its group may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "Permitted Recipients"). Persons who are not Permitted Recipients must not act or rely on the information contained in this letter.

DISTRIBUTION

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws of that jurisdiction.

View source version on businesswire.com: https://www.businesswire.com/news/home/20191201005225/en/

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