The beautiful irony of it all. THG Plc. (LON:THG), a British e-commerce specialist which operates websites for over 100 other companies, had to take its site down for maintenance (or it crashed?) Monday after it announced that the chief executive was giving up his golden share in the business.
The CEO’s decision was designed to appease investors after a tumultuous week of trading in which the company lost 25% of its value. For the moment, it managed to do that, lifting shares up 10% on the day. But the deeper fault lines remain – such as the actual valuations of THG’s trading assets, the loss-making and the corporate governance issues.
On paper it all sounded plausible, after all the company raised around $1 billion back in May, of which $730 million from Japan’s SoftBank which was interested in a stake in Ingenuity at a later stage.
THG owns the online retail sites Lookfantastic, Glossybox, Zavvi and Coggles, beauty brands ESPA and Illamasqua and nutrition Myprotein and said it would use the financing to grow its business through further acquisitions.
However, investors started asking questions about the firm’s sale-and-leaseback deal on its property, the founder Matthew Moulding’s borrowing against his stake in the business and several errors in company reporting. Some investors started building serious short positions in early October, ahead of the capital markets day last week.
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How not to run a capital markets day
The capital markets day aimed to quash questions over the capabilities of Ingenuity but instead backfired horribly as analysts and investors were left with more questions than answers. By close of trading the company had lost £1.85 billion in value, dipping to 260 pence from a peak of 684 in early September.
And it had all started so optimistically. THG listed in London in September 2020 in the midst of a global pandemic and was the biggest London IPO since 2013. The share price initially rose but then started trending lower over the course of this year until September, when after a brief peak, it really begun to lose ground.
Those special share rights
One of the issues was Matthew Moulding’s special share right which gives him the right to veto any hostile takeover along with the real value of the company’s trading assets.
Matthew Moulding’s decision Monday to cancel his special share rights has gone some way to address investors’ issues and will help with the company’s plan to list on the main segment of the London Stock Exchange next year. It is neither here nor there that his right was due to expire in 2023 and that he will give up the right to the share in 2023. Still, if this helps THG succeed in becoming part of the FTSE index it will also significantly boost the firm’s share price as index-tracking funds will have to buy its shares.
The company made other concessions to concerned investors, saying that it plans a review of its corporate governance and to potentially appoint an independent non-executive chair.
THG’s site, which is no longer down, exudes that THG “builds brands” and “creates experiences”. That is all well and good. Until your own brand receives a blow, and yes, the business fails to make a profit. Hmmm.