From the Wires
Just Eat Should Initiate Merger Discussions with Industry Peers, Says Cat Rock Capital
By: Business Wire
Feb. 11, 2019 12:00 AM
Cat Rock Capital Management LP (together with its affiliates, “Cat Rock”), a long-term oriented investment firm and beneficial owner of approximately 13.0 million shares of the common stock of Just Eat plc (“Just Eat” or the “Company”) (LSE:JE) today sent an open letter to the Company’s Board of Directors (the “Board”).
Cat Rock expresses deep concern regarding the Board’s recent appointment of executives who lack online food delivery experience to critical roles at the Company, repeating the mistake the Board made by appointing Peter Plumb as CEO.
Cat Rock argues that a merger with a well-run industry peer would be a far better outcome for shareholders than relying on the Board to choose a new CEO, particularly given the Board’s poor record of CEO selection. A merger could deliver world-class management, delivery capabilities, a premium, and, critically, continued equity participation in any future value creation.
Cat Rock concludes the letter by strongly urging the Board to initiate good-faith merger discussions with its industry peers, with the goal of completing a transaction in the next few months.
Alex Captain, Founder and Managing Partner of Cat Rock Capital Management LP, commented:
“Just Eat is a high-quality business with fantastic growth prospects. As long-term shareholders with significant experience in this sector, we are keenly focused on ensuring that the Board pursues the best path for the Company and its shareholders.
“The Board’s experiment of appointing an industry outsider like Mr. Plumb to the CEO role failed miserably and destroyed shareholder value. Now Just Eat needs a world-class management team with online food delivery experience and proven delivery capabilities. A merger is an obvious path for securing these advantages for the Company.
“We believe that there would be significant strategic interest from other industry participants and therefore urge the Board to swiftly and seriously engage in good-faith merger discussions to create substantial value for all Just Eat shareholders.”
The full text of Cat Rock's letter is included below. This letter and previous letters are also available at JustEatMustDeliver.com.
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A LETTER TO THE JUST EAT BOARD OF DIRECTORS
11 February 2019
Board of Directors
Dear Members of the Board:
As you know, Cat Rock Capital Management LP (together with its affiliates, “Cat Rock”) is a long-term supporter and shareholder of Just Eat, which we believe is a high-quality business with significant growth potential. Cat Rock is the beneficial owner of approximately 13.0 million shares of Just Eat stock.
We were pleased that the Board recognized its mistake in appointing Peter Plumb as CEO. Since Mr. Plumb’s departure, we have attempted to work with the Board constructively and privately to achieve the best possible outcome for all Just Eat shareholders. Unfortunately, recent developments have made it clear that the Board is squarely on the path to repeat the serious mistakes that led to Mr. Plumb’s appointment. Just Eat clearly needs a world-class management team with online food delivery experience and proven delivery capabilities, and we urge the Board to initiate good-faith merger discussions with industry peers to secure these advantages for the Company and its shareholders.
Board Repeats Mistakes
After Mr. Plumb’s departure last month, we expected that the Board would learn from its past mistakes by seriously engaging with shareholders and experienced industry veterans to quickly secure much-needed leadership for the Company. We and other shareholders hoped that the Board had learned the “Plumb Lesson” – namely, that in a fast-moving space like online food delivery, an executive who is trying to learn the business cannot effectively lead the business.
Woefully, it appears that the Plumb Lesson remains entirely lost on the Board. Instead, the Board continues to appoint executives with no online food delivery experience to critical roles at the Company.
The Board’s misguided approach was evident in its handling of the departure and replacement of Chris Simair, the CEO and Co-Founder of SkipTheDishes, Just Eat’s Canadian business. We only learned indirectly of Mr. Simair’s departure two weeks ago because the Board chose not to disclose it to shareholders, even though Mr. Simair ran the Company’s second largest and fastest growing business and played an integral role in its global delivery initiative. Ignoring the Plumb Lesson, Just Eat shockingly entrusted the leadership of this critical business to the former Chief Marketing Officer of the Movember Foundation, a not-for-profit organization that gets men to grow moustaches to raise awareness of men’s health issues.1
The Board again flatly disregarded the Plumb Lesson by appointing Peter Duffy as Interim CEO and, we understand, seriously considering him for the permanent CEO role. While likeable on a personal level, Mr. Duffy is an executive made in his predecessor’s imperfect mold – he too has no prior online food delivery experience.
Board Rejects Assistance
To help the Board, we suggested two highly qualified potential CEO candidates with extensive online food delivery experience and recommended that the Board consult with a highly experienced industry veteran on the search process. We also offered to meet the Board in London in February to discuss the CEO search.
The Board did not even bother to contact one of the two candidates who we had said needed to be contacted quickly and therefore lost the ability to consider him for the role. The Board also ignored our advice to consult with our suggested accomplished industry veteran to navigate the search process. The Board ignored our offer to meet, instead telling us via form email from the Company Secretary to wait for “public announcements” on “significant developments.” Indeed, the Board seems committed to conducting the same “thorough”,2 plodding, and ultimately calamitous process that led to Mr. Plumb’s hiring in 2017.3
Assessing and Repairing Damage
Not only did Mr. Plumb make poor strategic and operating decisions while CEO, he also eviscerated Just Eat’s management ranks. During his tenure, Just Eat lost Chief Operating Officer Adrian Blair, Chief Marketing Officer Barnaby Dawe, Chief People Officer Lisa Hillier, and, most recently and concerningly, the CEO and Co-Founder of SkipTheDishes Chris Simair.
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. We and our fellow shareholders believe this is not a task for a Plumb-style learner. Not surprisingly, the most accomplished industry leaders are already leading other online food delivery companies. 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.
We have spoken with many other shareholders, and many of them share our conclusion – a fair merger is a far better alternative than relying on the Board, with its poor record of executive selection, to choose a new leader for the Company.
As we have said previously, we believe Just Eat is a high-quality business with substantial growth potential and valuable assets. We would expect that there would be significant strategic interest in a merger from other industry participants. For example, Jitse Groen, the CEO of Takeaway.com (in which we and many other Just Eat shareholders are also invested4), has publicly said that the UK is one of the three best markets in Europe and, separately, that he intends to be active in global consolidation.5 We and other shareholders would insist upon a premium and substantial equity consideration to allow Just Eat shareholders to participate in any value creation that occurs post-merger.
The rationale for a merger with a well-run industry peer is clear:
1) Just Eat could secure world-class management for the Company.
We therefore urge the Just Eat Board to swiftly initiate good-faith merger discussions with industry peers with the aim of completing a transaction in the next few months.
If the Board continues to ignore shareholder feedback and fails to seriously and expeditiously explore this avenue for value-creation, we intend to take further action in advance of the Annual General Meeting scheduled for 1 May 2019.
We welcome continued dialogue with other long-term shareholders and remain open to discussions with the Board.6
Sidley Austin LLP is serving as legal advisor to Cat Rock Capital.
About Cat Rock Capital Management LP
(2) Source: Just Eat Press Release, “Just Eat appoints Peter Plumb as Chief Executive Officer,” 6 July 2017.
(3) Notably, after stating that Mr. Plumb had been selected in a “thorough process”, the Board went on to praise Mr. Plumb’s “ability to retain, deepen and build senior management teams” while “creating value for shareholders”. Of course, neither happened during Mr. Plumb’s tenure, which was marked by an exodus of senior talent and negative shareholder returns.
(4) Cat Rock owns approximately 2.5 million shares of Takeaway.com (circa 4.9% of shares outstanding).
(5) Takeaway.com CEO Jitse Groen stated “the UK, Netherlands, and Poland are the best markets in Europe” at the Morgan Stanley Telecom, Media, and Telecommunications Conference on 16 November 2018.
(6) The views described herein are based on publicly available information with respect to the Company. Certain financial information and data used herein have been derived or obtained from, without independent verification, publicly available information including public filings with regulatory authorities and from other third-party reports, by the Company or other companies deemed relevant. Cat Rock has neither sought nor obtained consent from any third party for the use of previously published information. Any such statements or information should not be viewed as indicating the support of such third party for the views expressed herein. Cat Rock shall not be responsible or have any liability for any misinformation contained in any third-party report or regulatory filing.
Cat Rock Capital is publishing this announcement solely for the information of other shareholders in Just Eat plc. This announcement is provided merely for general informational purposes and is not intended to be, nor should it be construed as (1) investment, financial, tax or legal advice, or (2) a recommendation to buy, sell or hold any security or other investment, or to pursue any investment style or strategy. Neither the information nor any opinion contained in this announcement constitutes an offer to purchase or sell or a solicitation of an offer to purchase or sell any securities or other investments in the Company or any other company by Cat Rock Capital or any fund or other entity managed directly or indirectly by Cat Rock Capital in any jurisdiction. This announcement does not consider the investment objective, financial situation, suitability or the particular need or circumstances of any specific individual who may access or review this announcement and may not be taken as advice on the merits of any investment decision. Any person who is in any doubt about the matters to which this announcement relates should consult an authorised financial adviser or other person authorised under the UK Financial Services and Markets Act 2000.
FORWARD LOOKING STATEMENTS
This press release and the letter contain certain forward-looking statements and information that are based on Cat Rock Capital’s beliefs as well as assumptions made by, and information currently available to, Cat Rock Capital. These statements include, but are not limited to, statements about strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements that are not historical facts. When used herein, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “project” and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumption as to future events that may not prove to be accurate. Actual results, performance or achievements may vary materially and adversely from those described herein. There is no assurance or guarantee with respect to the prices at which any securities of the Company will trade, and such securities may not trade at prices that may be implied herein. Any estimates, projections or potential impact of the opportunities identified by Cat Rock Capital herein are based on assumptions that Cat Rock Capital believes to be reasonable as of the date hereof, but there can be no assurance or guarantee that actual results or performance will not differ, and such differences may be material and adverse. No representation or warranty, express or implied, is given by Cat Rock Capital or any of its officers, employees or agents as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, targets, prospects or returns contained herein. Any historic financial information, projections, estimates, forecasts, targets, prospects or returns contained herein are not necessarily a reliable indicator of future performance. Nothing in these materials should be relied upon as a promise or representation as to the future.
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