The Hut Group (THG) share price has gained over 19% this week despite a 1.2% slide so far today after chief executive and founder Matt Moulding admitted the e-commerce company could be “vulnerable” to a significant bid. Yesterday Moulding informed investors the company’s board had received “indicative proposals from numerous parties in recent weeks”.
However, he was firm that the approaches had mentioned valuations of the company that did not“reflect the fair value of the group”. He added “THG is not currently in receipt of any approaches”.
There has been speculation that private equity firms have been assessing a buyout with the names of Clayton, Dubilier & Rice, Advent International and Leonard Green all linked with the company. There was no confirmation yesterday of who the snubbed approaches had been made by.
THG is attracting interest after an over 80% slum in its valuation in the past 12 months. The company was valued at £5.4 billion when it listed in September 2020, which rose to around £7 billion. It is now worth only £1.3 billion.
THG was founded as an online DVD and CD retailer by Moulding and John Gallemore in 2004 and now makes most of its money selling beauty and nutrition products under number of brands. The company owns around 300 e-commerce websites and employs roughly 10,000 staff. Its share price gained almost 16% yesterday after the admission of preliminary proposals having been made for an acquisition.
Analysts have commented recently that markets have probably overly harshly punished the THG share price over the past year and that the company’s decline in valuation was excessive. Of course, that’s exactly the kind of company that appeals most to private equity bidders.
Investors have been critical of corporate governance standards at THG group and the control Moulding continues to hold over the company thanks to his golden share that gives him the power to veto any takeover bid despite only owning 22% of the issue equity. Earlier this year the shares suffered a sharp sell-off in the wake of a key investor presentation that had been intended to reassure shareholders.
THG has made recent efforts to improve its corporate governance and Moulding has also said it would upgrade to a premium listing that would allow it to be included in FTSE indices “when the time is right”. That would involve Moulding giving up his golden share.
Co-founder Gallermore, who is THG’s chief financial officer has defended the golden share as protection against a hostile takeover by a foreign bidder, saying “if it wasn’t for the golden share then we might be sitting alongside Morrisons”. He was refering to the British supermarket company acquired by the American private equity group Clayton, Dubilier & Rice last year. CD&R are also one of the groups linked to the recent approaches made to THG.
There has also been speculation that Moulding might try to take the company private again while retaining control. He has said his experience since the company had gone public “sucked from start to finish” and blamed short-sellers for the poor share price performance.
In May THG group struck a deal with the huge technology investor SoftBank giving the Japanese conglomerate an option to acquire a 19.9% stake in its Ingenuity e-commerce technology business at a valuation almost as high as that for the whole company at the time. However, it doesn’t currently look as though SoftBank will choose to exercise its option.
