The THG share price just jumped 40%. Here’s why

The THG share price just surged. Edward Sheldon looks at what’s behind the massive jump in the online shopping company’s shares.

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The THG (LSE: THG) share price has spiked this morning. As I write this, shortly before lunch, shares in the e-commerce company – which was previously known as ‘The Hut Group’ – are up more than 40%.

So, what’s going on here? And could there be more gains to come from the stock?

Preliminary buyout proposal

The reason the stock has soared this morning is that, in an announcement posted at 10.21am, THG said that it has received a preliminary buyout proposal from private equity firm Apollo Global Management.

THG doesn’t mention the terms of the proposal. And it has said that there can be no certainty that any firm offer will be made.

However, it says that Apollo is required to either announce a firm intention to make an offer for THG, or announce that it does not intend to make an offer for the group, by 5pm on 15 May 2023.

It’s worth noting that the takeover talk here has boosted the share prices of some other UK-listed e-commerce stocks such as ASOS, Boohoo, and Sosandar.

Not the first takeover interest

The THG buyout talk is quite interesting, to my mind.

The reason I say this is that this is not the first time the company – which owns a number of popular e-commerce websites including Lookfantastic, Cult Beauty, and Myprotein – has had some takeover interest.

Last year, THG said that it had rejected a number of bids for the group including a £2bn joint takeover bid from investment companies Belerion Capital Group Limited and King Street Capital Management.

THG believed these deals “significantly undervalued” the company.

Now, after today’s 40%+ share price rise, the company’s market cap is about £1.2bn.

This suggests that for THG to agree to a deal, Apollo would have to make an offer that is well above the current stock price.

What’s next for THG shares?

Whether Apollo is willing to cough up the cash remains to be seen though.

Clearly, it sees some appeal in the online shopping company.

However, THG does have some baggage. Back in January, for example, the company gave a profit warning after revenue growth missed its target.

Meanwhile, its losses appear to be widening. Analysts at Numis are forecasting that for 2022, the company will post a loss of £277m, taking total losses over the last five years to more than £1bn.

Given the mounting losses, a major investor reportedly just told THG’s CEO Matt Moulding to “get his house in order”.

The losses have also attracted the attention of short sellers.

In light of all this, I wouldn’t bank on Apollo making a monster offer for the group. It may decide to walk away from a deal.

So, it’s hard to know where the THG share price goes from here.

I find the THG takeover interest encouraging though. It confirms to me that there’s plenty of value to be found in the UK stock market right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has positions in Asos Plc and Boohoo Group Plc. The Motley Fool UK has recommended Boohoo Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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