Investing.com -- In response to Prosus ’ (AS:PRX) announcement last month of an agreement to buy Just Eat Takeaway (AS:TKWY) in an all-cash deal for €4.1 billion, Citi analysts downgraded the food delivery company’s shares to Neutral from Buy.
Given that Just Eat’s shares are currently trading close to the offer price, approximately 4% below, Citi has set the successful closing of the acquisition at the current terms as their new base case scenario. The analysts have maintained their existing forecasts for the company’s financial performance.
In their bull case scenario, Citi acknowledges the possibility of a superior offer emerging, citing DoorDash (NASDAQ:DASH), Uber (NYSE:UBER), and Meituan (HK:3690) as potential bidders with the necessary scale and resources. However, they consider this unlikely due to various strategic and regulatory considerations.
“We believe Meituan/DASH would prefer organic approaches to overseas strategies over M&A and would likewise be surprised to see a bid from Uber given concentration and regulatory risks,” Citi analyst Monique Pollard noted.
Should a competing bid materialize, it would have to exceed Prosus’s offer by at least 10%. Citi’s bull case reflects the potential of a 15% higher bid at €23.3 per share.
In contrast, in the bear case scenario, Citi does not anticipate significant regulatory obstacles to the acquisition but has outlined a situation where the deal could fail.
If the acquisition by Prosus does not come to fruition, they predict Just Eat’s valuation could de-rate to 8.6 times its forecasted FY25e EBITDA, which aligns with the multiples of peer Deliveroo Holdings PLC (LON:ROO) before the acquisition announcement.
“Our FY25e Adj. EBITDA is at the mid-point of management’s €360-380m guidance,” Pollard points out.
In the bear case scenario, the company’s net debt would be adjusted to account for a €410 million break fee from Prosus “to reflect the break fee payable by Prosus in the event of the deal falling through on a regulatory basis,” the analyst explained. This would result in a valuation of €16.9 per share.