The Prosus board obviously doesn’t believe in doing things in half-measures.
What is the point of having your very own listing, after all, if you can’t make a big, scary, audacious bid?
At R93bn, its tilt at British food delivery business Just Eat is just that.
If it wasn’t an "internet conglomerate", Prosus might have considered making an offer for 100% of Shoprite (R78bn), and adding 45% of Pick n Pay (R15bn) for good measure.
Such a deal could only hope to produce a steady flow of long-term earnings with matching share price growth. Nothing heart-stoppingly exciting there.
By contrast, the Just Eat acquisition would make Prosus the largest food delivery business in the world, putting it ahead of major players like Uber Eats and Deliveroo.
That’s an enticing prospect for any unicorn fan — except that Just Eat made all of £800,000 in profit for the first half of its financial year, even as revenues surged 30% to £464.5m.
Jean-Pierre Verster, CEO of Protea Capital Management, says this is the key difficulty in valuing hyped-up tech stocks.
"Whether it’s a good opportunity depends on how profitable the business will be in the future and whether or not the future will turn out as [Naspers CEO Bob] Van Dijk and his colleagues forecast," he tells the FM.
Naspers’s international tech investment arm already has substantial food delivery assets.
It has stakes in India’s Swiggy, Europe’s Delivery Hero and, with Just Eat, in Brazil’s iFood.
Food delivery is one of Prosus’s three strategic areas of investment, other than its 31% stake in Tencent, which makes up 85% of its NAV. The other two areas are fintech and online classifieds.
Prosus’s offer for Just Eat quickly went hostile: the Just Eat board said it wouldn’t recommend the 710p a share cash offer to its shareholders, so Prosus went directly to the shareholders with its bid.
It isn’t the first time Prosus has tried to do a deal with Just Eat.
In fact, it has been circling for some time and had previously offered 670p and then 700p a share. The decision to go directly to the shareholders was prompted by plans for a board-backed, share-based merger between Just Eat and Dutch food delivery company Takeaway.com, which would have scuppered, at least for now, Prosus’s plans for global domination.
The Prosus cash deal was announced shortly after publication of details of the proposed merger scheme, which shareholders are due to vote on on December 4.
The Just Eat board says the offer significantly undervalues the company’s assets and prospects both on a standalone basis and as part of the proposed merger with Takeaway. Some analysts claim it was opportunistic as it followed a weakness in the Just Eat share price after the release of disappointing trading figures.
More crucial is the charge that Prosus was hoping to benefit from a fall in the Takeaway share price, which meant the share-based merger was now significantly less attractive. This charge looks set to haunt Prosus in the coming weeks as investor Cat Rock Capital, which owns 2.6% of Just Eat and 5.5% of Takeaway, has accused the Naspers subsidiary of undermining the merger agreement.
Recall that Prosus has a 22.3% stake in Delivery Hero and also, since May 2017, a representative on the Delivery Hero board.
As it happens, Delivery Hero owns 13% of Takeaway.
Cat Rock says the recent selling pressure on Takeaway was a result of Delivery Hero’s decision to sell 3-million of its Takeaway shares.
"Delivery Hero acknowledges it is a concert party with Prosus, and it initiated a major open-market share sale of Takeaway.com stock only 11 days before Prosus signed a nondisclosure agreement with Just Eat in order to compete against Takeway.com’s bid," Cat Rock said in a statement issued on Monday, adding: "Delivery Hero structured its share sales in a bizarre and uneconomic fashion that seems deliberately intended to depress Takeaway.com’s stock price in the run-up to the shareholder vote on a merger with Just Eat."
Prosus would not provide the FM with a response to queries about any regulatory fallout, but it did issue a statement on Monday pointing out that the Just Eat share price was 589p on the day before its offer was announced.
"In our view this price reflected the market’s disappointment in the continued weak performance of the business as evidenced in their Q3 update," said Prosus, before going on to explain that it intended to provide the investment needed for Just Eat to compete successfully.
It also reconfirmed that Prosus does not have control over Delivery Hero’s investment decisions, and that internet-related shares have been falling.
Prosus has now set out to woo Just Eat shareholders and says it "welcomes the opportunity to engage with shareholders to discuss the merits of its offer".
Cat Rock’s allegations may or may not attract some uncomfortable attention from the Dutch stock exchange authorities, but the incestuous nature of the tech investment business might soon start to grab the attention of the robust EU competition authorities.
And so, getting back to the nuts and bolts of the proposed takeover, it seems the R93bn price tag is just part of the cost.
It’s not simply the wherewithal to fund the expansion Just Eat might be short of; top management might be a problem, too.
In January, Just Eat CEO Peter Plumb resigned unexpectedly after only 16 months in the job. Plumb had upgraded the company’s technology and taken it from a platform connecting customers with local takeaways to a full delivery service. That move required investment and drained profit growth.
If a deal with Takeaway goes through, Takeaway CEO Jitse Groen will become CEO of the merged entity.
The market so far is taking a dim view of Prosus’s ambitions and its shares remain about 6% weaker than their pre-Just Eat offer levels.
Anchor Capital, however, argues that a deal may make good sense for Prosus, while London-based Olivetree Financial reckons the premium being paid by Prosus offers a good exit for Just Eat shareholders, given that the company does require "significant investment into tech and most significantly own delivery services".
As for the Takeaway deal, not only does Takeaway not have the financial capacity to beef up its offer with a dollop of cash but also, says Olivetree, there was a significant lack of shareholder irrevocables attached to the merger proposal. All in all it’s likely, unless it’s too audacious for the regulators, that Prosus may well secure its eye-wateringly expensive and profit-free deal.
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