(Bloomberg) -- Just Eat Plc should merge with a rival online meal-delivery company because the board has shown that it can’t find a suitable chief executive officer, according to Cat Rock Capital Management LP, which owns about 2 percent of Just Eat.
The Greenwich, Connecticut-based investment firm sent an open letter to Just Eat’s board of directors saying it made a mistake in appointing Peter Plumb as CEO in 2017. Just Eat should use global consolidation to its advantage and a merger would deliver “real value,” according to Cat Rock.
“You basically have a situation where you can get a world-class CEO and delivery capabilities, while also potentially securing a premium valuation for shareholders,” Alex Captain, founder of Cat Rock, said in a phone interview. “We are very focused on ensuring the board engages in discussions to secure this outcome for shareholders.”
A spokesman for Just Eat said it takes communications with all of its shareholders “extremely seriously,” adding that it’s “carrying out a thorough CEO appointment process and we will update the market as appropriate.”
Plumb stepped down last month, and Cat Rock said Just Eat has ignored two suggestions of potential replacements who have experience in online food delivery. The stock has dropped 12 percent in the past 12 months and several key executives resigned during Plumb’s tenure, including former Chief Operating Officer Adrian Blair.
“Any new CEO will face the daunting task of rebuilding Just Eat’s entire management team while simultaneously attempting to execute on the company’s marketplace and delivery initiatives,” Cat Rock said in the letter. “It is therefore increasingly clear that a merger would be the best way for Just Eat to secure the management talent and delivery expertise it needs to compete.”
Shares of Just Eat gained as much as 3.4 percent in London Monday.
Consolidation has been heating up in the food delivery sector. Takeaway.com NV agreed to acquire the German businesses of Delivery Hero SE for approximately 930 million euros ($1 billion) in December, while Uber Technologies Inc.’s bid for Roofoods Ltd.’s Deliveroo stalled over a disagreement on valuation, the Financial Times reported in November.
Takeaway.com and Delivery Hero have market values of about 3 billion euros and 6.5 billion euros respectively. Other industry players include GrubHub Inc., Meituan Dianping, DoorDash Inc. and Postmates Inc.
“Not all of those are going to be legitimate industry peers for Just Eat to negotiate with, but we do think that there are multiple logical suitors," Captain said.
Cat Rock estimates that iFood and SkipTheDishes could be worth more than 2 billion pounds ($2.6 billion), while Just Eat’s core European business has significant upside.
Jeremy Thomas, head of global equities at Sarasin & Partners LLP, a shareholder in Just Eat, said via email that his firm’s engagement with the company continues.
"But we would make two observations," he said. "First, Cat Rock has other investments in the takeaway food platform industry whereas we are only invested in Just Eat. Second, because Just Eat has market leading positions in the majority of their markets, we see few in-market synergies from a combination with other large aggregators at this time."
Cat Rock has a 4.9 percent stake in Takeaway.com, according to a filing with the Dutch Authority for the Financial Markets. The firm no longer has any shares in Delivery Hero.
(Updates including Cat Rock’s other investments in last paragraph.)
--With assistance from Joost Akkermans and William Canny.
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