THG (LON: THG) shares are up to 139p as founder and CEO Matt Moulding mulls over takeover propositions that would take the company off the public market.
But despite the share price recovery, THG’s £1.7 billion market cap is far below its £5.4 billion valuation when it launched its Initial Public Offering in September 2020.
On Thursday, the company confirmed it had rejected a £2 billion bid from investment companies Belerion Capital and King Street Capital Management. It also noted this was the third recent approach for the business but offered no further details.
THG stated it had ‘received a third unsolicited, highly preliminary and indicative non-binding proposal of 170p per share.’ However, the board unanimously rejected the proposal, arguing ‘it significantly undervalued the company and its future prospects.’
Belerion’s co-founder and chief investment officer, Iain McDonald, is a THG non-executive director. It had just £1.1 million in net assets on 30 June 2021, while King Street is a multinational giant with more than $20 billion under management.
The media release came just hours after property tycoon Nick Candy announced ‘Candy Ventures confirms that it is in the very early stages of considering a possible offer for the entire issued and to be issued share capital… there can be no certainty that any offer will be made, nor as to the terms of any such offer.’
Both statements cited ‘press speculation’ as the reason to go public, despite the lack of prior media noise. This suggests THG and its bidders could be concerned about potential leaks of incorrect information.
THG had already dismissed ‘numerous’ takeover approaches as ‘unacceptable’ in April. And under strict UK takeover rules, all bidders have until 16 June to put in a formal offer or walk away from the table.
Complicating matters, Moulding maintains a ‘golden share’ that allows him to veto any hostile takeover, making McDonald’s relationship particularly valuable. However, THG intends to end this relationship by the end of 2022.
Where next for THG shares?
THG’s IPO was the largest since Royal Mail’s in 2013. But public life has been far from relaxing.
Moulding has come under fire on multiple fronts: for his golden share, which dissuades institutional investment, for breaking corporate governance best practice guidelines by holding both CEO and Chairman positions before former ITV CEO Lord Allen was appointed as Chair, and for the recently inked deal that will allow him to buy multiple THG-owned properties, and then rent them back to the company for millions.
Then there’s the Capital Markets Day presentation disaster, covered in excruciating detail by the Financial Times here.
In November, the CEO said listing in London had ‘sucked from start to finish.’ Retaining a 22% stake, he carped of his ‘options’ to take THG private in combination with ‘a few people I’m close with’ who together control more than 50% of THG’s shares.
But he’s also told investors he will soon move the company from the standard to the premium segment of the London Stock Exchange, which could eventually see it included in the FTSE 100.
And despite the problems, THG saw revenue increase by 35% to £2.2 billion in 2021, which then increased by an additional 16% year-over-year to £520 million in Q1 2022. Further, the company expects sales growth of 22-25% in this year alone.
In addition, despite widespread analyst concern, THG is spending £200 million on a gigantic new Manchester warehouse that will house 250 robots capable of processing 500,000 items a day, worth £14 billion a year. And more are planned internationally.
Of course, at 139p THG’s share price is still 18% below the quoted 170p bid price. As Davy analyst Roland French notes, ‘the market is discounting the probability of a bid approach in the short term – the language used by THG was heavily caveated.’
And the Mail on Sunday has reported that Moulding would only seriously consider an offer within the range of ‘£2 to £2.50’ a share, on the proviso that he would retain control.
However, delisting could be a mistake. If the CEO’s strategy is to relist in the US at a later date, it’s worth noting the hammering that the NASDAQ Composite has taken so far this year.
And while a return to privacy may give Moulding more creative control, private equity is also being squeezed by tightening monetary policy. Moulding may return THG to a much less financially friendly arena.
Moreover, its 2020 London IPO raised £920 million, while a further placing last year raised an additional £800 million. This capital has been key to THG’s rapid growth.
But as suitors circle, a bidding war can’t be ruled out.