Breakingviews - Deliveroo lacks tasty recipe for takeover call - Reuters

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LONDON, Sept 14 (Reuters Breakingviews) - Deliveroo’s (ROO.L) valuation makes it a plausible takeover target, but Chief Executive Will Shu has a weak hand in negotiating any deal. Activist investor Sachem Head Capital Management has built a stake in the London-listed food delivery company, Bloomberg reported late on Wednesday. The move is in anticipation of the 2 billion pound group being gobbled up once Shu’s super-voting shares expire in April next year. Share prices of Deliveroo rose nearly 5% on Thursday morning.

True, Deliveroo looks undervalued next to peers. After deducting net cash, the 1.3 billion pound company is trading at 0.6 times the sales analysts think it will generate this year, LSEG data shows. That’s below the 1.5 times average of rivals Delivery Hero (DHER.DE), Just Eat Takeaway.com (TKWY.AS), HelloFresh (HFGG.DE) and DoorDash (DASH.N). But it’s cheap for a reason: Deliveroo is not expected to generate operating profit until 2025, according to analyst estimates polled by LSEG, and its main market is the UK, a slow-growing, inflation-ravaged economy. And Britain’s competition watchdogs will make it difficult for industrial players like Uber Eats or technology companies like Amazon.com (AMZN.O) to buy it. Lastly, Delivery Hero and Amazon’s 5% and 12.5% stakes could complicate any deal. If a bidder does place an order, it is unlikely to have a rich price. (By Karen Kwok)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. Refiles to fix grammar in first paragraph.)

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