RE: Question about MM4 May 2023 14:42
THG slumps as Bloomberg questions viability of Apollo takeover
Thu, 4th May 2023 13:34
(Sharecast News) - Shares in THG slumped on Thursday after research from Bloomberg Intelligence suggested that the e-commerce company is unlikely to close a deal with US private equity firm Apollo Global Management seeing a profitable exit.
THG announced last month that it had received a highly preliminary and non-binding indicative takeover proposal from Apollo. The PE firm now has until 15 May to either announce a firm intention to make an offer or walk away.
But Bloomberg Intelligence said it seems unlikely that THG will accept a takeover bid from Apollo and for the latter to make a return, based on its sum-of-the-parts valuation, which is below any acceptable scenario for THG shareholders.
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"This makes us question the viability of Apollo's takeover intentions," it said.
Bloomberg said in the research that THG may be 30% more valuable broken up.
"THG's valuation suggests it trades at a 30% discount to the sum-of-the-parts," it said. "Using peers' comparables for Beauty (0.8x 2023 EV/sales online specialists average), Nutrition (1.9x EV/sales at 50% discount to nutrition specialists) and Ingenuity (1.8x 2023 EV/sales - with the Commerce part at a 30% discount to application-software peers and Infrastructure in line with online specialists), we get a premium valuation of £2.7 billion.
"Structural beauty and nutrition sector growth and low profitability are propounding the case for a breakup."
Bloomberg said the nutrition category is in line for compound average sales growth (CAGR) of 8.3% in 2022-27, ahead of 5.9% for sports nutrition, according to Euromonitor. Beauty could quicken if online resumes its structural growth, with Beauty e-commerce seen expanding at a 5.1% CAGR in 2022-27, it added.
It also said that THG and Apollo are unlikely to agree on price. It argued that the PE firm's offer would need to have a substantial premium - above 157% to the 14 April closing price - for THG to even consider selling, given prior bids were rejected.
"Our sum-of-the-parts valuation suggests the offer is below the lower-end scenario, implying Apollo wouldn't see a profitable exit," it said.
"THG shareholders could consider a bid at the higher-end scenario, with the stock price down 88% from its peak (80% from the IPO)," it said.
"The THG board has the ability to block the bid, with the Moulding family holding about 26% (listed and unlisted) of the shares and Sofina about 9%. In addition, CEO Matthew Moulding retains his golden share until September, granting him the right to veto a takeover."
Bloomberg also pointed out that last year's unanimous rejection of Belerion Capital's 170-p-a-share takeover by THG's board underlines management's conviction that the market has mispriced its controversial Ingenuity division.
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