THG and SoftBank call off plan for $1.6bn investment in UK group

THG and SoftBank canceled a long-standing agreement for the Japanese company to buy a $1.6 billion stake in the British e-commerce group’s technology division, cutting off what was meant to be a valuable source of funding for the growing business.

Confirming what many analysts and investors have long feared, THG said that “in light of global macroeconomic conditions, the option and cooperation agreement has been terminated by mutual consent of the parties with immediate effect.”

The connection with a unit of the investment vehicles of the Japanese billionaire Masayoshi Son Gram great excitement When it was announced in May 2021 as part of a $1 billion fundraising that made SoftBank one of the largest shareholders in Manchester-based THG.

This would have given SB Management – the unit of SoftBank that received the option – the right to acquire a 19.9% ​​stake in Ingenuity, the technology and logistics platform that powers THG’s health and beauty e-commerce business and provides services to many multinational consumer groups. , at an exercise price that implies an enterprise value of more than 6 billion dollars per unit.

sharing b THG — founded and run by entrepreneur Matt Molding — rallied immediately after the deal, but those gains evaporated during a summer of negative headlines and growing investor questions about its strategy and governance.

The streak of losses continued into 2022 despite efforts to improve governance and transparency, as investor sentiment toward technology companies soured and raw material and energy costs rose. to stress On THG’s profit margin.

On Tuesday, THG shares traded at 69p, little changed on the day but almost 90% lower than the 596p at which Softbank bought its stake in the group. At £872 million, THG’s entire market value is less than what SoftBank agreed to pay for one-fifth of the company’s division.

Analysts have cut their forecasts and target prices for the group, while a series of bid approaches, most recently from an investment channel employing one of THG’s own non-executive directors. Going out for nothing.

THG has not ruled out a future sale of holdings in Ingenuity or its other businesses.

In a brief statement, the e-commerce group said the separation of its main trading divisions into discrete legal entities has been completed – in line with the 15-month timetable set out last year – providing it with “material optionality and flexibility to enter into future strategic partnerships to generate value accretion”.

The company has previously talked about accepting investments or separately listing its e-commerce business, which sells health and beauty and nutrition products and generates most of its revenue.

SoftBank has also suffered multiple setbacks since the initial deal with THG. SB Northstar, the hedge fund that is the immediate parent of SB Management, has mostly eliminated after accumulating significant losses. Akshay Nehta, the former Deutsche Bank trader who engineered many of his investments, has left the group.

The formal termination of the option agreement, and the lack of cash infusion it would have brought, means that THG could go into net debt this financial year, although it still has sufficient cash and borrowing facilities.

Creating separate legal entities for the group’s main business units may also herald greater transparency about costs and margins. Until now, little has been revealed about how much the e-commerce business spends on fulfillment, marketing and IT because THG only reports group-level profits.

One person close to the company said that selective acquisitions are expected to continue given the attractive valuations in some quarters, but added that 2021 was a particularly heavy year of investments in new ventures and infrastructure.

Cooperation with other SoftBank-owned entities, notably warehouse automation specialist AutoStore, will continue and Andreas Hanson remains a non-executive at THG even though he is no longer a SoftBank director.

THG and SoftBank call off plan for $1.6bn investment in UK group Source link THG and SoftBank call off plan for $1.6bn investment in UK group

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