Reinvention is on menu after raid on Deliveroo

Secret swoop by Delivery Hero looks like vote of confidence as struggling UK peer bets on middle classes for its salvation

‘The arrival of Delivery Hero on the shareholder register will ruffle feathers’

Everyone loves a good food fight but what about one that involves last night’s takeaway curry? It probably arrived cold anyway, once you’d recovered it from the porch of that neighbour four doors down, who’s always stealing your parking space.

At Deliveroo things could be about to get very messy after Delivery Hero launched a secret raid on its rival’s shares, emerging with a near-6pc stake in one fell swoop first thing yesterday morning.

With the German takeaway outfit refusing to give a detailed commentary on the move, the City’s sharpest minds are scratching their heads: “It is hard to say with conviction at this point what Delivery Hero’s intention is”, was the hot take from analysts at Jefferies.

The obvious response is to spin it as a vote of confidence at a time when Deliveroo’s long-term prospects remain a source of great doubt in the Square Mile following its disastrous stock market float. The shares soared nearly 10pc at one stage, to 359p, their highest level since April’s £5bn listing but still 8pc below the 390p float price.

The naysayers argue that the industry’s recent profit bonanza is the result of a one-off pandemic takeaway boom that won’t be repeated. Though the big names insist that customer appetite will endure, there is a scramble for new sources of revenue in a bid to prove that there is more to the model than just delivering burgers and chips to a one-bed flat in Peckham on Friday nights.

For Deliveroo, salvation may come from an unlikely source: a tie-up to deliver groceries for Waitrose in super-quick time that is helping middle class Britain’s favourite grocer tap into an entirely new market.

Apparently, younger shoppers are happy to part with £2.50 to have a bottle of wine and posh ready meal delivered to the door mid-week, so they don’t have to traipse down to the local supermarket.

The venture began as a trial less than a year ago and has been so successful that it has already been expanded to 110 out of 345 stores, four times more than when it started. John Lewis boss Sharon White has described the income from the deal as “really significant”.

Whether or not it proves to be the path to riches for Deliveroo remains to be seen but there is no question that this is an industry that will require a fairly sizeable level of reinvention if it is to become sustainable.

The company has gobbled up £1.3bn of private capital since 2013 and generated £224m of losses last year. The economics of food delivery are risible – more orders means more riders, which means more costs – hence a flurry of consolidation that has left Deliveroo looking decidedly lightweight in the fight.

Just Eat has swallowed European competitor Takeaway.com and America’s Grubhub in quick succession to create a €16.3bn (£13.5bn) delivery giant with £3.4bn of combined annual turnover that dwarfs Deliveroo. Revenue at Delivery Hero doubled last year to £2.4bn and the company is worth £28bn. Meanwhile, the UK app has a market cap of just £6.3bn and posted sales of £1.2bn last year.

In the excitement, it is tempting to conclude that the Berlin-based firm is gearing up for a serious tilt at a major market where it currently has no presence. Yet, under a dual-class share structure that attracted criticism ahead of Deliveroo’s share sale, founder Will Shu has the power to block any takeover bid for next three years, so unless he is open to a friendly merger there can be no deal.

Nevertheless, the unexpected arrival of Delivery Hero on the shareholder register will ruffle feathers. Deliveroo’s attempts to crack Germany ended after just four years when Just Eat and Delivery Hero joined forces. It gave the pair a virtual monopoly of a £6bn market, while Deliveroo was left with just a 2pc share.

In a sector where you could become the next meal, it makes sense to have a seat at the table.

Enough to take the breath away

What a puzzler for the ESG shareholder brigade: two competing takeover bids for Vectura, a bona fide British pharmaceutical firm that makes inhalers to alleviate respiratory problems.

The first offer is from buyout house Carlyle, exposing its scientists to the debt-fuelled, profit-making model of the private equity industry; the other from Philip Morris, forcing Vectura’s pointy-heads to become complicit in a particularly cynical piece of corporate reinvention whereby one of the world’s biggest cigarette manufacturers profits from the treatment of the same diseases that its products cause. What next for the Marlboro-maker, a move into funeral homes too?

With Vectura’s board unable to make up its mind in the face of repeated counter-bids, the Takeover Panel has stepped in. Unless the contest has been decided by this evening, an auction will take place.

For neutrals, such events make for fascinating viewing. Not only are shoot-outs of this nature desperately rare but the likelihood of the eventual winner getting carried away is huge, as Tata Steel found out to its great cost.

In 2007, the Indian industrial giant and Brazil’s CSN got sucked into a fierce auction for Anglo-dutch steelmaker Corus. In its desperation to break into Europe, Tata eventually paid £6.2bn – a third more than its opening bid. Even former chairman Ratan Tata eventually conceded that management had overpaid.