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Activist investor Cat Rock targets Just Eat

Activist hedge fund Cat Rock Capital Management LP is urging British food delivery company Just Eat PLC to revise its financial targets, change its executive incentivization plans and sell noncore assets in order to deliver greater shareholder value.

Alex Captain, founder and managing partner of the Connecticut-based investor, wrote a letter Dec. 17 to Just Eat's board, asking directors to address key issues that have caused it "to become the worst-performing public equity in online food delivery globally."

Cat Rock has built an approximately 2% shareholding in Just Eat over the past two years, representing 13 million of the company's outstanding shares.

The firm said in its letter that Just Eat's shares have fallen almost 30% in 2018 and are now trading at almost the same price as two years ago, despite recording about 100% growth in revenue over the same period.

Cat Rock believes the company's initial 2018 revenue guidance of £660 million to £700 million is "unjustifiably low" and too easy to achieve. It also criticized Just Eat's lack of long-term publicly disclosed targets for organic growth and EBITDA.

Cat Rock is urging the London-based company to revamp its incentivization packages for executives "within the next 30 days." It says the current system is unambitious and rewards executives for pursuing revenue growth, a "flawed metric" that could be destructive to shareholder value.

The hedge fund is also calling on Just Eat's board to consider strategic alternatives for the company's non-European assets, particularly its 33% minority ownership in Brazilian virtual food court Agência de Restaurantes Online SA. The fund said the sale of Just Eat's interest in iFood could generate as much as £650 million, representing over 15% of Just Eat's market capitalization.

"We think the first step toward addressing Just Eat's underperformance is clear: the company's board needs to lay out a three-year plan commensurate with Just Eat's potential," Captain wrote in the letter.

In response, a spokesperson for Just Eat said: "We have a clear strategy in place to deliver long-term sustainable value for our shareholders, which is focused on providing the best possible experience for customers and restaurants on our platform."

During its third-quarter trading update, Just Eat reported a 44% rise in revenue and noted that its Canadian business SkipTheDishes continued to grow and is helping to boost its global delivery strategy.

"The board engages closely with shareholders to ensure management has an appropriate long-term incentive programme aligned to the exciting and unique growth opportunities of the Just Eat Group," the spokesperson added.