Europe's biggest meal delivery company Just Eat Takeaway.com TKWY.AS is looking at selling US arm Grubhub less than a year after buying it, under pressure from investors to revive its shares amid stiff competition and a fading pandemic boost.
In an abrupt turnaround, CEO Jitse Groen said that Takeaway had hired banks to explore a possible sale of Grubhub - alongside potential partnership options it was already exploring - and that buyers had expressed more than casual interest.
"We are in talks with people around this (a sale), but I need to caution that doesn't automatically lead to a transaction," Groen told reporters.
Takeaway, which paid $7.3 billion for Grubhub in 2021 while racking up a billion-euro loss, has been hit as investors reappraise valuations for loss-making technology companies and stocks seen as big beneficiaries of the pandemic.
The company's shares, which have lost two-thirds of their value since an October 2020 peak above 100 euros, rose strongly in early trading but were up just 0.8% at €26.31 euros at 1426 GMT on Wednesday 20 April, not far above their 2016 IPO price of €23.
At current levels, Takeaway's market value of €5.3 billion is less than it paid for Grubhub.
CFRA Research analyst Angelo Zino said Grubhub's value was now likely much lower than during the pandemic, "as revenue remains above pre-pandemic levels but growth has stalled."
Competitors that might be interested in buying Grubhub, Doordash and Uber Eats, would likely face opposition from US antitrust authorities, he said.
Investor sentiment towards online food companies has soured amid expectation that some customers who switched to home deliveries during the pandemic will return to restaurants.
In a trading update, Takeaway said that orders had fallen 1% in the first quarter and it now expected "mid-single digit growth" in Gross Transaction Value (GTV) this year, instead of the "mid teens" predicted in January.
GTV measures the total value of food ordered and delivered.
Takeaway handled 264.1 million orders in the first quarter, compared with an estimate of 286 million by JPMorgan analysts.
Catalysts
The downgrade to Takeaway's outlook follows a warning by British rival Deliveroo last week that consumer spending could slow this year amid a cost-of-living squeeze.
Takeaway and Deliveroo have been striking deals with supermarkets to add on-demand grocery delivery to their offerings to try to stave off competition from "fast grocery" startups such as Gorillas of Germany and Getir of Turkey.
Groen said his operational focus would be on growing average order sizes and cutting costs. "We expect profitability to gradually improve throughout the year, and to return to positive adjusted EBITDA (core earnings) in 2023," he said.
Major shareholders including Cat Rock, the company's second-largest with a 6.88% stake, publicly criticised the purchase of Grubhub and called for its sale.
Grubhub has strong positions in East Coast cities, notably New York, but its profitability was hit by caps on the commissions it is able to charge restaurants in the pandemic.
Takeaway is challenging the legality of the fee caps, which it says are costing the company around 200 million euros annually in lost operating profit.
In a note, Barclays analysts said Takeaway looked undervalued on a "sum of the parts" basis.
"There are still potential catalysts to unlock this with the process on Grubhub ongoing, a sale of (Takeaway's stake in Brazilian business) iFood possible, legal cases around fee caps ongoing in the US, and the AGM upcoming."
Last week, hedge fund Lucerne Capital Management, with approximately 600,000 shares, said it would vote against the reappointment of the company's finance chief at the AGM in May to protest over alleged poor communication and the weak share performance.
Deliveroo Found Guilty Of Abusing Riders' Rights In France
In other food delivery business news, the above news followed news that two former managers of Deliveroo ROO.L were given suspended one-year prison sentences and fined €30,000 by a French court on Tuesday 19 April for abusing the freelance status of cycle riders working for the British takeaway delivery platform.
The company was also fined the maximum penalty of €375,000 and will have to publish the court decision on Deliveroo's French home page for one month.
Deliveroo said that it would appeal the decision.
The ruling may reverberate outside France as the gig economy, built largely upon digital apps and self-employed workers, faces a number of court challenges that may redefine working conditions.
Under French law, employee status grants rights, including unemployment benefits, social security and pension contributions.
The administrative investigation, which reviewed a period extending from 2015 to 2017, and the subsequent court hearings showed that Deliveroo had imposed an almost permanent surveillance and control over riders' work while they were connected, judge Sylvie Daunis said.
That included allocating riders long time slots to be sure Deliveroo had as many people on hand as possible during the weekend, and telling drivers who refused that they would not be allowed to work for the platform the following weeks, for instance.
Even though the riders were freelance, the court also found that Deliveroo unilaterally changed the criteria under which pay increases were defined or the minimum time needed to be online to qualify as a rider.
"This set of elements characterizes a situation of almost permanent legal subordination," Daunis said, referring to a key element that defines the employee status in France.
Shares in Deliveroo, which have lost more than 70% of their value since they listed at 390 pence in March 2021, closed down 5% at 108 pence on Tuesday 19 April.
Deliveroo said in a statement that it "categorically contests" the French court's ruling.
"The judgement goes against previous decisions in civil courts covering the same historic period, which have repeatedly found riders to be self-employed," a spokesperson said.
"While this case does not concern today's operating model, we strongly disagree with this judgement and the basis on which it has been made, and we will appeal."
The company said it would maintain operations in France.
Its said the court decision referred to an early version of its operating model and had no consequences for the way it operates today.
"Our model has since evolved in order to be more in line with the expectations of our delivery partners, who want to remain independent...Deliveroo will continue to operate with a model that offers these independent providers a flexible and well-paid business," the company said.
Former riders have sued Deliveroo for alleged abuse of their freelance status and claim the company should have hired them as employees.
Deliveroo withdrew from Spain last year after the government said food delivery companies had to employ their couriers. The British company said it wanted to focus its investment on other markets where it had or could achieve a leading position.
News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.
