British e-commerce giant THG (formerly The Hut Group) has revealed plans to spin off its technology division, Ingenuity, signaling a major shift from founder Matthew Moulding’s initial vision of building a large, publicly-listed tech enterprise in the UK.
This decision comes as part of a strategic overhaul aimed at refocusing THG’s operations.
The company disclosed in an investor update that it is actively exploring various structures for the demerger of Ingenuity, although no definitive timeline has been set.
Following the announcement, THG’s share price plunged more than 8% in Tuesday afternoon trading.
THG receives tax clearance for demerger
THG has secured approval from HM Revenue & Customs (HMRC) for tax clearance related to the potential demerger.
The company stated that any proposal for spinning off Ingenuity would require shareholder approval and promised to provide more details as they become available.
If the demerger proceeds, THG will focus exclusively on its THG Beauty and THG Nutrition divisions, aiming to streamline its operations and improve investor clarity.
SoftBank’s decision to exit its investment in THG Ingenuity has played a role in the company’s current strategy.
Initially, SoftBank acquired an 8% stake in THG for £481 million in 2021, with an option to invest an additional $1.6 billion.
However, by October 2022, SoftBank had divested its entire stake, which influenced THG’s reevaluation of Ingenuity’s future.
Launched in 2021, Ingenuity was envisioned as an e-commerce platform for retailers but has faced challenges in meeting its growth targets.
THG seeks FTSE inclusion
In addition to the spin-off, THG is pursuing a new listing structure on the London Stock Exchange (LSE) to enhance its chances of inclusion in major UK stock indices such as the FTSE 100.
The company plans to transition its publicly traded shares to the newly created Equity Shares Commercial Companies (ESCC) segment on the LSE.
This new segment, introduced by the Financial Conduct Authority (FCA), is designed to attract high-growth tech firms to the UK market.
THG hopes this move will boost liquidity and attract passive investment.
Since peaking at £800 per share in December 2020, THG’s stock has suffered a substantial decline, currently trading at £57.65.
The drop reflects the end of the tech and e-commerce boom driven by COVID-19-related stay-at-home trends.
This decrease in market value underscores broader challenges in restoring investor confidence and achieving growth in shifting market conditions.
Moulding has criticized the London IPO market, suggesting that a US listing might have been more beneficial.
What the spin-off means for investors
THG’s decision to spin off Ingenuity and restructure its listing represents a significant pivot in its business strategy.
For investors, the demerger could result in a more focused company with streamlined operations in beauty and nutrition, potentially leading to more transparent valuation prospects.
However, the company’s ability to recover and thrive amid ongoing economic challenges remains uncertain.
The coming months will be pivotal as THG navigates its new strategy and seeks to regain market confidence.
The impact of these changes on the company’s future performance will be closely watched by investors and market analysts alike.
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