It’s arguable as to whether THG – The Hut Group – (LON: THG) should in fact be on the stock market at all. One possible solution to that problem is of course for it to stop being on the stock market – for THG to go private again.
We’ve mentioned this before about THG: “One is the rumour that Moulding might take THG private again. This would have to be at a premium to the current price but probably not to the 500p flotation price.” This is what is happening at present, the gossip about whether that move to go private again is getting stronger, much stronger.
Both Advent International and Leonard Green are said to be running their slide rules over the options to take THG private again. As we said before, any such offer would have to be at a substantial premium to the current share price, thus the jump in that price over the weekend.
As to why this go private idea the fact is that Moulding just doesn’t seem cut out to be running a public company. There’s not, in fact, much wrong with the way the company itself is going. Sure, recent results were below expectations but that’s part of the point about Moulding. Expectations management is a part of the chairman’s job.
There’s also that issue over his complaints about short selling. The claims seem to be that the big boys ganged up on him and then ran away. Which isn’t how short selling works at all – it’s a bet on the company currently being overvalued, not a manner of creating that overvaluation. As it turned out the short sellers were right too, THG is well down from the 500 p flotation price.
As traders though we want to know what to do next? The answer being that we’ve got to make a calculation here. Leave aside – because the action is going to be in the short term – the performance of the underlying business of The Hut Group. As we’ve said that’s not too bad but that’s obscured by it previously being overvalued. Shares in THG are going to be valued, in this short term, according to news or not of those private equity barons having a look at THG.
If they walk away then there’s more downside to come. Not, particularly, because the company itself is bad, but because of sentiment. If private equity won’t take it at these low prices then why should we as outside investors? If they decide to take another step though, then there’s likely to be another jump in the THG share price.
If even an approach to make an offer – and so get to see the management books, not just the public stock market information – were made then there would have to be an announcement about that. At which point we’d see another jump in the THG share price.
That’s what the trade is – a private equity approach for THG is going to materialise or not?
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Tim Worstall is a freelance writer specialising in economics and the financial markets.