THG ends talks with US private equity investor Apollo

Manchester online retail giant, THG, has ended takeover talks with American private equity investor Apollo.

Apollo responded this morning by announcing it does not intend to make an offer for the retail group.

THG’s share price has fluctuated following news of Apollo’s interest, hitting 120p per share last week, although it closed last night (May 11) at 81.75p, up from 74.74p the previous day. When the market opened this morning the share price slumped to 57p.

THG announced on April 17, that it was in receipt of a highly preliminary and non-binding indicative proposal from Apollo Global Management Inc on behalf of certain of its affiliated funds, to acquire the entire issued and to be issued share capital of THG.

Following this the board of THG entered into a short period of discussion with Apollo to provide it with an opportunity to improve the proposed valuation and confirm the structure of its indicative proposal.

But the retailer said today that it has become clear to the board, supported by shareholders representing a majority of THG’s issued share capital, that there is no longer any merit in continuing to engage with Apollo.

It said, as with other offers, the board considers the Apollo approach undervalues the business.

The board said it has unanimously determined that it is not in the best interest of THG shareholders to seek an extension to the deadline set out in the company’s announcement dated 17 April, and has terminated all discussions with Apollo.

THG goes on to say that the profitability and cashflow improvements delivered during the first quarter of fiscal year 2023, have continued in the second quarter, along with ongoing online sales momentum further supporting the board’s full year guidance.

It said the actions undertaken by management since the beginning of 2022 to improve operating leverage, reduce capex and generate working capital efficiencies, coupled with ongoing deflation in whey commodity prices, underpin significantly improved profitability and cash flow neutrality in FY 2023.

The company reiterates its expectations to deliver positive free cash flow in FY 2024 and adjusted EBITDA margins of around nine per cent over the medium term.

Since Lord Allen’s appointment as independent chair in March 2022, the composition of the company’s board continues to progress in accordance with its independence and diversity objectives, with three further independent non-executive directors appointed, including the recent appointment of Sue Farr as senior independent director.

Following completion of the divisional reorganisation and subsequent strategic review, the group said it now has a full range of strategic options to maximise shareholder value across the Nutrition, Beauty and Ingenuity divisions.

THG chair, Charles Allen, said: “THG’s board, in accordance with its fiduciary obligations and as demonstrated with its recent engagement with Apollo, will always give due consideration to all potential options which provide the opportunity to maximise value to THG’s shareholders.

“The board remains fully confident in THG’s strategic direction and long term prospects as an independent company. As stated in our recent results, with a strong balance sheet and category-leading positions within substantial global end markets that continue to benefit from long term structural growth, we have confidence in our ability to deliver long term value for shareholders and remain on track to be cashflow positive in 2024.”

In a LinkedIn post today, THG founder and chief executive, Matt Moulding, said: “Like with all previous bidders, the Apollo bid wasn’t right for THG. Yes, it allowed existing shareholders to stay invested with me continuing to run the group. But Apollo also wanted PE controls, particularly across Beauty & Nutrition where they asked for controlling equity rights.

“Like all previous bidders, Apollo were told their bid valuation and structure was unacceptable. Yesterday Apollo set out how they could raise their bid further, ahead of a deadline set by the Takeover Panel. Their latest view on Ingenuity had it as being significantly more valuable than the whole of THG the day before the bid was leaked!

“No sh*t! Ingenuity is great. But neither Apollo’s bid price, nor the structure proposed, are in the best interest of THG. Myself, Charles and the board, supported by >50% of all shareholders, all agree on that.

“And so, the Apollo bid was based upon smart financial engineering, capitalising on a wildly low share price from THG being on the LSE. I get excited about building and growing things, not spreadsheets.”

Russ Mould, investment director at Manchester investment platform, AJ Bell, said: “The misery around nutrition and cosmetics e-commerce play THG goes on.

“Down more than 90% on the price at which it joined the stock market, it slumped further this morning as it called off talks with private equity firm Apollo. Investors hoping a takeover would put both them and the company’s torrid existence as a public entity out of their misery will be disappointed.”