Activist investor: JET’s Grubhub purchase is a ‘capital allocation mistake’

Dive Brief:

  • Cat Rock Capital Management, which owns 14.8 million shares in Just Eat, published a letter to JET’s shareholders Monday advising them to vote against JET’s CFO and legacy supervisory board during the company’s Annual General Meeting on May 4. 
  • The company claims that since JET purchased Grubhub two years ago, JET’s market value declined 75%, translating to a loss of over $17 billion at current exchange rates. Cat Rock alleges JET leadership misled shareholders on the company’s profitability outlook in advance of the shareholder votes prior to the completion of the sale.
  • Cat Rock’s letter comes just days after JET told its shareholders that it is considering a partial or full sale of Grubhub, as well as a strategic partnership with another party. Cat Rock has been pressuring the company to sell Grubhub since October.

Dive Insight:

Cat Rock claims shareholders approved the JET/Grubhub deal believing that JET had plenty of capital to fund the acquisition and that 2021 EBITDA would be close to an increase of $429 million at current exchange rates. In early 2021, JET disclosed that its profits had disappeared and its EBITDA was expected to be a loss of $64 million to $85 million, Cat Rock said. 

“JET management made a capital allocation mistake when it decided to buy Grubhub in June 2020 with minimal synergies only two months after tripling the Company’s size with the Just Eat acquisition [with],” Alex Captain, founder and managing partner of Cat Rock Capital Management, said in the letter. “We believe the bulk of the value destruction occurred because JET management gave investors a misleading financial outlook in advance of the two Grubhub shareholder votes, leading to two massive profit downgrades in 2021 and shattering investor trust in management.”

Cat Rock said JET can’t argue that its public market performance was due to short-term volatility since its stock price has fallen by 18% over the past five years and this decrease occurred even as the COVID-19 pandemic benefited food delivery companies. 

“JET management’s betrayal of trust torpedoed the Company’s share price even as the business delivered outstanding fundamental performance. Over the past five years, JET grew revenue approximately +400% organically while generating over €1.2 billion [roughly $1.3 billion] of cumulative EBITDA,” Cat Rock said. 

Executives said during its 2020 earnings call in March 2021 that its focus wasn’t necessarily immediate profitability.

“At this stage, we’re really going for market share and not improving EBITDA,” JET CEO Jitse Groen said during JET’s 2020 earnings call in March 2021. However, in March 2022, Groen said in the company’s Q1 earnings statement that the priority of this year would be to enhance profitability and strengthen its business. 

“We expect to grow profitability to gradually improve throughout the year, and to return to positive adjusted EBITDA in 2023,” he said. 

JET also said that Grubhub’s profitability was hurt by caps on delivery commission fees, which it is fighting in places like New York City and San Francisco. JET said it is focusing on increasing revenue per order, improving courier cost per order and reducing overheads and operating expenses. The company also partnered with McDonald’s earlier this year, which JET expects will drive operational and efficiency improvements and marketing exposure.


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