In its short and not entirely successful time on the stock exchange, THG has been no stranger to takeover approaches.

Now another bidder has emerged, in the form of Apollo Global Management. The market is taking that interest seriously: THG’s shares shot up 45% yesterday to their highest level since June 2022.

But the scant information released so far – there has been no mention of an indicative price – doesn’t give much confidence in Apollo’s approach ending differently to previous cut-price offers.

Last summer, two parties walked away from a potential £2bn deal for THG: joint bidders Belerion Capital and King Street Capital Management, and Candy Ventures. Both declined to make a formal offer for the group following talks.

This was all down to a dispute over THG’s value. Belerion and King Street offered 170p per share back in May last year, which THG said “significantly undervalued the company and its future prospects”.

THG shares were at 116p at the time of that bid. On Monday, they opened at 66.1p.

So it’s not entirely clear why Apollo would bid higher than an offer already roundly rejected or why THG’s view of its own inherent value – and current level of undervaluation – would have changed over the past year.

Analysis from Liberum broker Wayne Brown illustrates why THG management remains reluctant to sell on the cheap.

He put a target price of 220p on the stock based on a sum-of-the-parts valuation. Its THG Nutrition and THG Beauty divisions alone are worth more than the entire group’s current market cap of just over £1bn, with Nutrition valued at £1.84bn and Beauty at £1.29bn.

Add in another £476m for its Ingenuity business and a few other bits and pieces and it has a total group value of £3.6bn, which translates to a £3bn fair value market cap, adjusting for debt.

The THG board would presumably want a premium on top of that fair value – meaning Apollo is potentially looking at paying four times the level shares were trading at this time last week to be taken seriously.

That prospect will be particularly unpalatable in light of THG’s annual earnings today. It reported a £496m annual operating loss as its margins were slashed by a reluctance to pass on inflationary price increases and investment in customer retention. Adjusted EBITDA slumped to £64.1m from £161.3m last year.

Even in the first quarter, it registered negative sales growth as it tried to focus on higher-margin products.

The shares responded by dropping 18% today to 78.6p, pouring considerable cold water on yesterday’s rally.

It presents a quandary for THG founder Matthew Moulding, who is undoubtedly keen to take the company private. After all, he has made no secret of how little he has enjoyed THG’s time on the stock exchange.

There is also a school of thought that a restructure of the business – potentially selling off its brands to focus more wholly on its Ingenuity e-commerce platform – could be best achieved away from the gaze of the public markets.

At the same time, Moulding made it clear last year he wouldn’t be tempted to sell in a cut-price deal.

His view of the group’s value will be in the context of the £5.4bn 500p per share level of its float, which saw its shares rise past 800p by January 2021, before collapsing in the autumn of that year. While few expect THG to get back to these levels any time soon, crystallising such a loss of value will leave an unpleasant aftertaste.

Plus, while THG generates the vast majority of its £2.24bn of sales through its beauty and nutrition brands, the core investment case has always been a long-term bet on the value of its online retail platform for third parties and its ability to scale that up. 

Shareholders invested in that journey are likely to have to remain patient, as the prospect of an Apollo windfall looks somewhat distant. As with many of its DTC contemporaries, THG remains a ‘jam tomorrow’ play for the foreseeable future.