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UK web star ingeniously adds $1 bln to war chest

3 minute read

REUTERS/Emily Elconin

LONDON, May 11 (Reuters Breakingviews) - THG (THG.L) has built a valuable business flogging beauty creams and slinky gym gear on the web. Now it’s managed to sell a stake in a technology subsidiary that doesn’t yet exist. The UK e-commerce darling on Tuesday announced it had raised $1 billion from investors led by SoftBank (9984.T), while giving the Japanese giant an option to buy 20% of its Ingenuity unit for $1.6 billion. Although that deal may never happen, CEO Matthew Moulding can put his restocked war chest to good use.

THG’s deal with SoftBank comes in two parts: one tangible, and one hypothetical. The Japanese tech investor is spending $730 million in real money on THG stock, giving it a roughly 10% stake in the company, whose market value soared to $10 billion on Tuesday morning.

The second part is more theoretical. THG is planning to separate out its Ingenuity division, which creates websites and sells marketing capabilities to companies so they can market goods direct to consumers. It has given SoftBank an option to buy a fifth of the unit for $1.6 billion. On paper, that means Ingenuity is worth $6.3 billion, before SoftBank’s investment.

The arrangement has clear benefits for Moulding. The option forces investors to play closer attention to Ingenuity, which accounted for only 8% of the company’s 1.6 billion pound revenue last year, but which Moulding considers to be the true future of his business. Bank of America analysts reckon Ingenuity will bring in revenue of 224 million pounds this year. Sales could grow even faster if SoftBank opens doors with its many portfolio companies.

The cash may never arrive, however. THG could spend up to 15 months carving out Ingenuity as a separate subsidiary, an aeon in the light-speed world of online commerce. Even then, SoftBank has no obligation to exercise its option.

Still, Moulding has booked a win. He completed the share placing at Monday’s closing price, rather than the discount which is traditionally required to lure investors. The cash allows him to snap up acquisitions like the $255 million takeover of New Jersey-based Bentley Laboratories, announced on Monday. And THG shares rose more than 10% on Tuesday morning. It’s an ingenious way to boost a war chest.

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CONTEXT NEWS

- British Beauty and lifestyle e-commerce company THG on May 11 said it raised more than $1 billion in new equity, including $730 million from Japan's SoftBank Group.

The equity placing was priced at 596 pence per share and was oversubscribed, with THG raising a total of $320 million from other investors. The deal gives SoftBank a stake of just under 10% in the Manchester-based company formerly known as The Hut Group.

- THG announced on May 10 it had granted SoftBank an option to buy 19.9% of THG Ingenuity, a yet-to-be-formed subsidiary, for $1.6 billion. Ingenuity is THG’s technology arm that provides e-commerce services to other companies. THG said it would take up to 15 months to separate out the unit.

- THG owns beauty retailer Lookfantastic, makeup brand Illamasqua and beauty box service Glossybox, as well as supplements firm Myprotein.

- The cash injection comes less than a year after THG's London listing and will be used to fund further acquisitions. The company also announced it agreed to buy Bentley Laboratories, a New Jersey-based prestige beauty developer and manufacturer, for $255 million.

- The equity fundraising was led by Barclays, Citigroup, Goldman Sachs and Jefferies.

- Shares in THG were up 17.53% at 700.5 pence by 0738 GMT on May 11.

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