Many know South African media company Naspers (OTC:NPSNY) for its massive 31% stake in Chinese internet giant Tencent (OTC:TCEHY), which is now housed in a separate company called Prosus (OTC:PROSY), which was spun off from Naspers in September. Naspers owns about 74% of Prosus, which houses not only Tencent but all of Naspers' non-South African internet assets.
Many of these "other assets" besides Tencent are afterthoughts for investors, yet they could contain the seeds for Naspers' next big play. When asked what its "next Tencent" could be, Naspers management usually discusses its global food delivery businesses, even ahead of the company's stakes in online travel, online classifieds, and fintech.
At the time of the Prosus spinoff in September, Naspers had stakes in three large food delivery businesses: Brazil's iFood, India's Swiggy, and Germany's Delivery Hero (OTC:DLVHF). And just last week, Prosus made its biggest and boldest bet yet in global food delivery, this time with a "hostile" takeover bid for Britain's Just Eat (OTC:JSTT.Y).
Everyone wants to "Just Eat"
Naspers' bid for Just Eat came after the company had already received an all-stock bid from Netherlands-based Takeaway.com (AMS:TKWY) in July. However, since Takeaway's stock has fallen some 20% since the offer, Just Eat shareholders were now faced with an offer that itself became about 20% lower than when first introduced. Prosus thus recently swooped in, offering an all-cash buyout of Just Eat for around 4.9 billion pounds, or $6.3 billion in U.S. dollars. The offer is a 20% premium to the Takeaway.com offer, though only an 11% premium to that offer when it was first proposed in July.
Just Eat management promptly rejected the Prosus offer, instead choosing to go forward with the Takeaway.com merger, saying Prosus "significantly undervalues Just Eat and its attractive assets and prospects both on a stand-alone basis and as part of the proposed recommended all-share combination with Takeaway.com." However, Naspers is now appealing to Just Eat's shareholders, who will have a final vote on the deal. Interestingly, Just Eat's share price surged to a valuation of more than $6.6 billion, higher than even Naspers' bid, as investors appear to be anticipating a potential bidding war.
A food delivery soap opera
The current battle to acquire Just Eat has become even more soap-operatic in recent days. One interesting note is that Delivery Hero, which is minority owned by Prosus, has had a stake in Takeaway.com since December 2018, when Delivery Hero sold its German operations to Takeaway for cash and 9.5 million shares. That means Prosus' subsidiary owns a large minority stake in the company Prosus is now competing against for Just Eat.
More recently, an activist investor is now accusing Prosus of having Delivery Hero sell 3 million shares in Takeaway.com in September in order to depress Takeaway's stock price, making its all-stock bid even less attractive. Prosus has denied the allegations.
Jockeying for a big prize
The global food delivery market is full of high-growth companies with limited or zero profitability, but it's one that is rapidly consolidating. Current players see significant potential, but the level of competition is still too intense for most. Just look at the recent plunge in Grubhub (NYSE:GRUB) stock as evidence of what can happen when customers have too many options. Clearly, the Just Eat bidding war is the latest chapter in this saga, as both Takeaway.com and Prosus see an opportunity to fold Just Eat's large-scale business into their own.
Just Eat is so attractive because it has the largest market share in Europe, with significant operations in Canada and Australia, along with investments in uncontrolled subsidiaries in Mexico and Brazil. According to Pitchbook, as of 2017, Just Eat had a leading 40% market share across Europe. In fact, it's even larger than its "acquiror" Takeaway.com. In yet another interesting twist, Just Eat owns a 33% stake in Brazil's iFood, which is actually majority owned by -- you guessed it -- Prosus.
In the first half of 2019, Just Eat grew revenue at rapid 30% clip, but its profitability has dipped from positive to around breakeven as the company invests heavily in its own delivery network, a switch from the past, when it merely fed orders to restaurants with their own delivery personnel. This is an ongoing shift in the delivery market all around the world.
Clearly, there's plenty of jockeying going on in this space. Several companies are betting that if they can consolidate the industry, massive profits lie in the future. But just who will do so is still very much in flux. As of June, Naspers had $6.3 billion in cash, even aside from its massive $120 billion stake in Tencent. Therefore, it appears to have the deepest pockets with which to roll up the industry. The only question is whether it will be able to do so and, if so, at what price.
Investors should therefore monitor this exciting but dangerous space not only in the U.S. but around the world.