The boss of THG has revealed why takeover talks with US private equity firm Apollo came to an end.
Co-founder Matthew Moulding, who serves as the group's CEO, said the bid was based "upon smart financial engineering, capitalising on a wildly low share price" from THG being on the London Stock Exchange.
He added that neither Apollo's bid price or the structure proposed were in the best interests of THG.
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The news was first announced to the London Stock Exchange on Friday morning.
In the statement, THG, which owns the likes of Lookfantastic and Myprotein, said here was "no longer any merit in continuing to engage with Apollo".
Writing on LinkedIn, Mr Moulding said: "Just about every major PE firm has enquired about taking THG private. Usually, nobody finds out. But if there’s a leak, then the Takeover Panel forces an announcement. This is what happened with Apollo.
"PE interest isn’t surprising. For the three years before IPO, THG shares traded at £3. Having doubled in size we then listed THG at £5 a share in Sep 20. They rose to £8 in the first-year post IPO but, after the Numis led short attacks when they weren’t made a broker to THG, shares fell to as low as 30p in late 2022.
"The last time THG shares traded at 30p was in 2009, when the group had £80m sales and only sold CDs! Today THG is 28 x bigger (and we haven’t sold CDs for years).
"PE firms usually want majority ownership. We’ve been clear: don’t bid if you want 51%, plan to use debt to leverage up, or won’t allow existing shareholders to stay invested. This rebuffs most PE firms.
"c.65% of THG shares sit with me and several long-term shareholders. Our LSE pain comes from the 35% of 'fast money' shares actively trading. I’ve personally spent £39m since IPO, increasing my stake and reducing THG shares on the market. The most recent being £5m at 39p in late 2022.
"Yes, it’s unpleasant being listed in London. But I’ve spent 20 years building THG, from an idea while sat on my sofa, into a global group with sales of £2.2bn. We’ve just completed a vast expansion of our tech and global infrastructure. We’re just getting going.
"It’s well known that PE deals are lucrative for management. THG would be worth billions more away from the daily market manipulation involving bankers, hedge funds and pundits.
"PE typically give management 10% of the company as an incentive, with 5% to the CEO. These incentives are worth hundreds of millions to staff. PE can be compelling.
"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 and 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 leaked.
"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 shareholders, all agreed 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."
The approach from Apollo was announced on April 17 and saw THG's shares rise to the highest they had been in almost a year.
However they have been falling since the start of this month and suffered a drop of almost 20% on Friday morning before rebounding.
Last month, BusinessLive reported that almost 200 had been put at risk at THG.
THG said the move is as a result of the closure of its OnDemand division. BusinessLive understands that THG is also closing ProBikeKit, which it bought in 2013.
In its statement to the London Stock Exchange on Friday morning, THG said: "Following receipt of the indicative proposal, 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.
"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.
"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.
"Having discussed with its financial and legal advisors, the board 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 2023, as permitted by Rule 2.6(c) of the Code, and, consequently, it has terminated all discussions with Apollo."
It added: "The company confirms that 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."
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