THG shares continued their rollercoaster ride on Friday, dropping 13% in early trading after the company said that it’s no longer in talks with private equity giant Apollo about a possible takeover as the proposal undervalued the e-commerce business.
The shares had risen sharply on those takeover talks, although it had never seemed likely that the company would agree to the approach given that the unspecified offer clearly didn’t match the kind of valuation that the THG board thinks the business should have.
On Friday it said it had “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 it added 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”.
This rejection “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”, it explained.
THG’s market value is only around £783 million at present, based on a share price of just 65p. But that’s well below the valuation it commanded when it first listed on the stock exchange a few years ago, when its shares were changing hands for almost £8 each.
But it clearly has confidence in its future prospects as a listed company, and reiterated those prospects on Friday.
It said it can confirm that the “profitability and cash flow 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… 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% over the medium term”.
Company chair Charles Allen also added: “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 cash flow positive in 2024.”
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