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Stock Analyst Update

European Company Could Buy GrubHub for $6 Billion

Our fair value estimate for the narrow-moat firm remains.

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Just Eat, or JET, has made Grubhub (GRUB) shareholders more joyous by agreeing to acquire no-moat Grubhub in an all-stock deal, which based on the latest JET closing price and exchange rate, values Grubhub at $65.33 per share (or nearly $6 billion), 11% above Grubhub’s Wednesday closing price, and 36% higher than our fair value estimate of $48. Grubhub shareholders will be receiving 0.671 shares of JET for each Grubhub stock and will own 30% of the combined company. The deal is likely to close in first-quarter 2021. In our view, JET is overpaying for Grubhub as assuming a return to a normalized full-year post the coronavirus pandemic, the transaction (based on the last closing price of JET) represents around 3 times and 29 times Grubhub 2022 revenue and adjusted EBITDA, respectively. In our view, these multiples are high for a firm with decelerating top-line growth in a fast-growing market. Plus, with margin pressure due to increased competition, we expect Grubhub to generate operating losses through 2022.

While Grubhub shareholders are clearly winners in this transaction, we do not expect significant change in Grubhub’s operations. Nor do we anticipate this deal to improve the firm’s competitive positioning in the U.S. market against other players such as Uber or DoorDash. We also do not foresee significant threat to Uber from the newly combined company in the international markets. Uber had been in talks with Grubhub but walked away from the deal due to possible antitrust roadblocks, according to The Wall Street Journal. Our fair value estimate on the narrow-moat and 4-star Uber remains $48 per share.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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