- Apollo bid considered ‘inadequate’
- Company maintains 2024 cash-flow target
- Shares drop as much as 25% in early trading
Long-suffering shareholders in ‘digital-first’ consumer brands group THG (THG) saw their shares reverse all the gains of the last few weeks after the company rebuffed an approach from private equity firm Apollo.
After peaking earlier this month at 117p following the announcement in mid-April that Apollo had made an initial approach, the shares dropped 9% yesterday and as much as 25% today to a low of 55.5p on the news buyout talks had been terminated.
DONE AND DUSTED
According to the board of THG, it ‘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’.
However, within a matter of weeks, the board had decided there was ‘no longer any merit’ in continuing to engage with Apollo.
The firm added: ‘Consideration and rejection of the Indicative Proposal has been on a basis consistent with all previous offers for the company, some a matter of public record, which were also rejected based upon inadequate valuations and the nature of those offer structures.’
The board also decided it was not in the best interests of shareholders to extend the 15 May deadline for Apollo to make a firm offer, as it claims it now has ‘a full range of strategic options to maximise shareholder value across the Nutrition, Beauty and Ingenuity divisions’.
TALKING A GOOD GAME
In an effort to mitigate shareholder concerns and bolster the case for going it alone rather than seeking a strategic buyer, the firm reported that current trading was positive and management actions were having an effect.
‘The profitability and cashflow improvements delivered during the first quarter of FY 2023 have continued in Q2, along with ongoing online sales momentum further supporting the board's full year guidance.
‘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 9.0% over the medium term.’
ANALYST VIEW
‘The misery around nutrition and cosmetics e-commerce play THG goes on’, commented AJ Bell investment director Russ Mould.
‘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.’
By mid-morning, THG shares had recovered somewhat to trade 8p or 11% lower at 66.5p.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
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