In the world of techie businesses fuelled by hope and sky-high multiples of revenues, it’s not only Netflix that has stalled. Look at Just Eat Takeaway, which used to present itself as a deal-a-minute company taking a short-cut to global leadership and profits.
Takeaway.com, out of the Netherlands, bought Just Eat of the UK in early 2020 via a reverse takeover (briefly assuming a place in the FTSE 100 index before decamping back to Amsterdam). Only a few months later it announced plans to merge with US operator Grubhub via a $7.3bn all-paper deal at a fat premium. To sceptics who said two mega-transactions in rapid succession would be too much to swallow comfortably, chief executive, Jitse Groen, argued, in effect, that you have to seize the moment in the fast-moving delivery game.
Now, with the share price down 70% from its highs, the American adventure looks an expensive mistake. A “strategic partner” will be sought; alternatively, Just Eat will sell part or all of Grubhub. In other words, a strategic U-turn is on the cards in no time at all. Shareholders, including 6% owner Cat Rock, which was gung-ho for Grubhub at the time, seem to have decided that concentrating on Europe is a safer bet.
They’re probably correct, though ought to have reined in Groen’s over-ambition in the first place. The result is a fine old mess. It would be a miracle if Grubhub fetches anything like the price that Just Eat paid for it since the two obvious US acquirers, Uber Eats and DoorDash, would surely be offside on competition grounds.
Meanwhile, valuations have plummeted across a sector where virtually nobody is making a real bottom-line profit, as opposed to a massaged “adjusted” number. Deliveroo has avoided Just Eat-style calamities on the acquisition front but its share price has still crashed from 390p to 111p in its year as a public company.
Whistling cheerfully, Groen pointed to Just Eat’s flat order numbers in the first quarter as evidence that the lockdown whoosh of demand hasn’t evaporated. Fair enough, but the long-term economics of the crowded delivery industry remain a mystery. Growth is happening, but much of it is profit-less growth. Netflix’s woes look mild by comparison.
Poison pill tactics
The early winner in the great Twitter/Elon Musk standoff is the UK Takeover Code. Over here, manoeuvres such as the Twitter board’s poison pill defence wouldn’t be allowed. We take the view that shareholders are grownups who are quite capable of rejecting an inadequate bid. That seems a commonsense principle to adopt.
Twitter’s poison pill, or “shareholder rights plan”, seeks to deter bidders by threatening to issue stock to other shareholders at a discounted price if anyone (in other words, Musk) acquires more than 15% of the company without board approval.
In the UK, that tactic would fall foul of rule 21 in the code – the one that restricts “frustrating actions”. The UK’s underlying logic is sound: if a board wants to resist a takeover offer, it should make its arguments and let shareholders decide. If not, you have a formula for directors putting their own interests ahead of owners’ and enjoying a life of entitlement.
Naturally, one can see why Twitter’s board is worried, not just about Musk’s $43bn offer (which looks a long way from being funded and formal) but also about the risk that the maverick billionaire tries to gain creeping control by buying more shares, as he vaguely hinted at doing. But the UK safeguard for that situation also seems sensible: if a party goes above 30% control, it must make an offer to all shareholders at a price at least as good as the ones it recently paid.
The different approaches flow from different philosophies. Put bluntly, the US gives more power to boards (possibly one reason why US executive pay is so much more lavish) whereas the UK prioritises fair treatment of shareholders. The UK system may leave the door too open to opportunist predators, especially if the shareholders are poodle-like fund managers whose definition of the long-term is the next quarter, but at least one gets an open scrap.
Musk, as it happens, may be the last person one would wish to see entrusted with ownership of Twitter’s cesspit. But he has a point about poison pill tactics: they’re basically underhand and unfair.
