Activist investor Kelso ups its stake in THG and calls for potential spin-off of ‘hugely relevant’ nutrition business amid shift away from unhealthy foods
- Kelso has upped its recently built minority stake in THG to 8m shares
- Shift away from sugar and chocolate shows ‘relevance’ of THG nutrition arm
- Giants like Nestle may eventually snap up THG’s nutrition business, says Kelso
Kelso Group has upped its recently built minority stake in THG as it reiterated its belief in the ‘significant intrinsic value’ of the e-commerce business’ nutrition arm, despite widening group losses.
THG, which recently received a preliminary takeover proposal from private equity firm Apollo, saw annual losses almost treble to £550million last year.
But Kelso believes that ‘the shift in consumption away from chocolate and sugar to health and nutrition’ signifies the ‘huge relevance’ of THG’s nutrition division, which is behind the Myprotein brand.
THG nutrition arm, which owns the Myprotein brand, made £675m in revenues in 2022
The investor believes this shift will eventually see THG’s nutrition business being snapped up ‘by one of the large global food and beverage companies’ as they try to cash in on the growing wellness trend.
‘In our view, this strategic shift is akin to the major oil companies diversifying into renewable energy and highlights the huge relevance and underlying value of THG Nutrition,’ Kelso told investors as it upped its stake to 8million shares.
Kelso also said any offers for THG as a whole ‘must clearly reflect this underlying value’, adding that if no forthcoming offer was deemed acceptable, the board should consider a spin-off of its nutrition division.
Kelso noted that THG’s nutrition business raked in around £675million in revenues last year, up 2.4 per cent compared to 2021.
The comments come as THG became the latest British firm to be targeted by private equity predators after receiving a ‘highly preliminary and non-binding indicative proposal’ from Apollo Global Management on Monday.
The news sent shares in THG surging almost 50 per cent, though they crashed 20 per cent a few days later when the group posted record losses for 2022 and warned of a slump in revenues so far this year.
In a rollercoaster week for the stock, THG shares jumped 5.3 per cent to 89.5p in morning trading on Friday after Kelso’s move.
The group pointed to recent reports about a group of investors in Nestle demanding that the world’s largest food company reduce its reliance on sales of unhealthy products in order to achieve long term success.
Kelso said it had identified 12 global food and beverage companies, including Coca Cola, Pepsi, Mondelez and Kraft Heinz, that it believes ‘could be deemed overly focused on sales of chocolate or high sugar content products’.
‘The food and beverage companies we refer to above have vast offline global distribution networks that could significantly increase the offline sales of MyProtein,’ it added.
‘In return, we strongly believe, that MyProtein’s direct to consumer digital model would be highly attractive to many of these companies.’
