Everybody Eats: Just Eat Takeaway to combine with Grubhub in a $7.3bn deal
Friday 26th June 2020
Just Eat Takeaway.com (JET) announced on June 10th that it had entered into a definitive agreement with US food delivery marketplace outfit Grubhub. The deal will be structured in the form of a merger, with JET acquiring 100% of Grubhub shares in an all-stock transaction, with the aggregate Grubhub shares being bought for an implied price of $7.3 billion.
Slaughter and May, De Brauw Blackstone Westbroek and Cravath Swaine & Moore advised JET while Kirkland & Ellis, Wilson Sonsini Goodrich & Rosati and NautaDutilh acted as legal counsel for Grubhub.
In a nutshell: Online food industry
Food delivery services have been around for decades, but in the past 20 years the rise of digital technology has disrupted the market. Similar to companies such as Amazon or Netflix, online food delivery companies operate on the basis of providing customers with fast and convenient ways of having food from restaurants delivered to their doorstep. They do this by providing platforms through their websites or apps, connecting restaurants and customers with each other. And for the biggest food-delivery companies, they often hire drivers who then collect orders from restaurants and deliver them to customers, with the companies taking a commission (usually 15-30%) from the restaurants they partner with for each order made and delivered through the use of their platforms.
The global online food delivery services market has been steadily growing in the past decade, and was worth a total of $107bn in 2019, and is projected to grow by 3.6% to approximately $111bn by the end of the year. The slow growth is a result of the global economic slowdown caused by the COVID-19 pandemic. But as more people globally begin to have greater access to the internet and smartphones, coupled with the popularity of “convenience” companies such as Amazon and changing consumer behaviours with customers being less inclined to eat out at restaurants, online food delivery is here to stay.
With that said, the market is fiercely competitive. Companies such as JET, Deliveroo and UberEats compete for customers as well as restaurants to partner with. Many of them have also built and manage their own logistics networks, transporting orders from restaurants to customers through the use of their own drivers. Due to the costly nature of their operations, consolidation (mergers and acquisitions) is commonplace in the market as companies merge with and acquire competitors. This reduces competition and allows the consolidated entities to enjoy the benefits of economies of scale, as the costs of their business operations fall in proportion to the increased revenue that results from becoming a larger company with more customers.
Background to the deal
JET and its CEO and founder Jitse Groen are no strangers to M&A. After success in the Netherlands, the then Takeaway.com has bought several online food delivery companies such as its acquisition of the Belgian Pizza.be for €22 million in 2017, German outfits Lieferheld, Pizza.de and Foodora from Delivery Hero in 2019 and its £6.2 billion merger with UK outfit Just Eat, which was agreed in 2019 but was only granted regulatory approval by the Competition and Markets Authority in April 2020.
Groen and JET have clearly been pursuing an aggressive expansion strategy, with ambitions to build upon the success they have enjoyed in continental Europe and move into the most profitable online food delivery markets globally such as the UK and North America, with its mergers with Just Eat and Grubhub respectively, and its acquisition of Canadian company SkipTheDishes in 2016.
The Deal
JET will buy 100% of Grubhub stock and founder and CEO of Grubhub Matt Maloney will join JET’s management board and lead the newly combined group’s businesses across North America. In addition, two Grubhub directors will be joining JET’s supervisory board.
The deal developed in a somewhat Hollywood fashion, with Groen contacting Maloney soon after news outlets in May reported that Maloney was in talks to sell Grubhub to Uber. Groen and his advisers moved very quickly, and in less than a month the two parties came to an agreement, announced on June 10th.
The merger fits into JET’s expansionary rationale. Similar to JET’s merger with Just Eat earlier this year, combining with a similarly sized online food company will allow JET to enjoy Grubhub’s already established logistical network, keep Maloney as part of the management team with his nearly 20 years’ worth of experience in the market and JET will not have to go through the hassle of setting up shop in a market where they lack, relative to their competitors, knowledge and expertise.
JET’s merger with Grubhub will make it the largest online food company outside of China. JET will have a strong presence in the largest online delivery markets in the world. If they are able to replicate the success they have enjoyed in the Netherlands and the rest of continental Europe, JET will arguably become the Amazon of food delivery.
Practice area focus: Banking & Finance
Under the terms of the merger, Grubhub shareholders will be entitled to 0.6710 JET shares in exchange for each Grubhub share at an implied value of $75.15 for each share, bringing the value of the deal to $7.3bn. Grubhub shareholders will receive JET shares through American Depositary Receipts (ADRs), which, in a nutshell, are certificates issued by depositary banks in the US that represent an investment of a specified number of shares in a foreign company’s stock.
This is highly beneficial for JET as they can merge with Grubhub without the inconvenience and cost of listing their stock on US stock markets. Grubhub shareholders will expect to own 30% of JET stock in the form of ADRs. The financing of this deal through the exchange of stock likely required the expertise of American, British and European equity markets lawyers, which explains why counsel for both parties featured law firms from the UK, US and continental Europe.
Practice area focus: Corporate
Given the fact that the deal was structured as a merger as opposed to an outright acquisition, and with Maloney staying on as the combined group’s head of North American operations, legal counsel likely played an important role in the negotiations between the two parties. Furthermore, the corporate departments of law firms involved in the merger likely carried out work such as drafting and negotiating updated constitutions to reflect the changes in company dynamics brought about by the merger, and negotiations regarding shareholder rights under the new combined entity.
Practice area focus: Competition and Antitrust
Prior to JET’s agreement with Grubhub, Grubhub CEO Matt Maloney was in talks with Uber to sell his company to them. However, had Uber successfully bought Grubhub, it would have commanded market share in cities like New York of approximately 80%. This would have attracted the scrutiny of competition and antitrust authorities and there were doubts that even in the case of a deal with Uber being cleared by competition authorities, Grubhub would face difficulties complying to their terms.
In contrast, JET has no presence in the US and its merger with Grubhub will unlikely have to deal with the wrath of US regulators in the same manner as would otherwise have faced Uber if it acquired Grubhub. The merger will not result in any consolidation that necessarily undermines the competitive landscape of online food delivery companies in the US. This is a good example of how rules and regulations surrounding competition and antitrust can actually work in favour of a company (in this instance, JET).
Conclusion
This merger is yet another example demonstrating that even in times of uncertainty such as the one we are living in right now, companies are still willing to engage in M&A where they see it strategically beneficial. JET entered the crisis in a relative position of strength and are clearly optimistic about the future of the online food delivery market, hence why they pushed on with their expansionary strategy.
