The Hut Group (THG) has recently announced that it has ended discussions with private equity firm Apollo regarding a possible takeover. This news had a significant impact on THG’s shares, causing them to drop by 13% in early trading. It appears that Apollo’s proposal undervalued THG’s e-commerce business, leading the company to reject the talks.
During the negotiations, THG’s share price experienced a notable increase. However, the offer did not meet the expectations set by the board in terms of valuation. In a statement, THG mentioned that it engaged in discussions with Apollo to give them an opportunity to improve their proposed valuation and clarify the structure of their indicative proposal. The board, with the support of the majority of THG’s shareholders, ultimately decided that continuing the talks with Apollo would not be beneficial.
This rejection is consistent with previous instances where offers for the company were turned down due to inadequate valuations. Currently, THG’s market value stands at approximately £783 million, significantly lower than its initial valuation when it listed on the stock exchange a few years ago. Despite this, THG remains optimistic about its future prospects as a listed company.
THG expressed confidence in its performance, highlighting the profitability and cash flow improvements achieved in the first quarter of FY 2023, which have continued into the second quarter. The company also mentioned that online sales momentum is further supporting its full-year guidance. Management’s actions since the beginning of 2022, such as improving operating leverage and reducing capital expenditures, have led to significantly enhanced profitability and cash flow neutrality for FY 2023.
Moreover, THG shared its expectations of delivering positive free cash flow in FY 2024, along with adjusted EBITDA margins of approximately 9% over the medium term. Charles Allen, THG’s chair, emphasized the board’s commitment to considering options that maximize value for the company’s shareholders. He reiterated the board’s confidence in THG’s strategic direction and long-term prospects as an independent entity. With a strong balance sheet and leading positions in significant global end markets, THG is on track to generate long-term value for its shareholders and achieve cash flow positivity in 2024.
Useful links:
1. [THG official website](https://www.thehutgroup.com)
2. [Latest news on THG](https://www.thg.com/news)
