The cost of THG and Matt Moulding’s cashless property deal

In a year of London market blow-ups, it’s hard to know where to rank THG’s capitulation.

Following a difficult year for the shares of the Manchester-based-protein-powder-slash-beauty-retailer-slash-wannabe-e-commerce-platform-provider, investors expected clarity from its Capital Markets Day on Tuesday. Clarity over its Softbank-backed Ingenuity platform, clarity over its margins and clarity over its restructuring plans.

Instead, they got a jibe at short sellers. THG’s shares swiftly took a 35 per cent haircut. They’re now down some 65 per cent this year.

Plenty of questions have been asked of Matt Moulding’s knotty retail empire. But a recurring one concerns a certain property sale and leaseback his own investment vehicle did with THG, just before its September IPO last year.

The reason behind the deal, as it’s told in THG’s latest annual report, was relatively simple. THG had accumulated some freehold property over the years in the form of a few hotels, a spa and some commercial real estate. In late 2019, these assets were re-organised into a separate property arm and then securitised to raise debt. THG’s operating business then agreed leases with the various assets so the firm could still enjoy their economic benefits. Easy enough.

Yet pre-IPO it was decided that both the debt and the capital investment required to maintain the assets wasn’t such a good look for a “tech” business after all. So THG divested the property group to Matt Moulding’s holding company for £215m including the £139m of assumed debt.

The balance — £76m — was paid by Moulding.

Well, sort of. You see, THG didn’t actually receive any cash. Instead, a little bit of financial fairy dust was sprinkled.

Before the IPO Matt Moulding, thanks to his work as chairman and chief executive, had a large number of share options in THG that he could exercise. At the IPO price of £5, just over 15m of them would be worth £76m.

So instead of exercising these share options and receiving the scrip when the company listed, THG cancelled them. In effect, stock was swapped for property.

It’s important to note that THG board of directors signed off on this deal and it was, after the fact, examined by its own Related Party Committee.

But here’s the rub: with the share price now at £2.77 at pixel time, Moulding effectively “paid” just £42m for the real estate, not including debt. Property, we should add, that THG is paying annual rent of £19m on, according to its IPO prospectus.

With Moulding’s net worth crumpling by £278m on Tuesday due to the sell-off in THG’s stock, he’s probably thankful that, at the very least, he’s diversified his portfolio into some hard assets.

Shareholders, however, might start asking why THG just didn’t take the cash instead.

THG declined to comment.

Related Links:
THG and the odd case of the cash outflow -- FT Alphaville
How THG’s investor day went disastrously wrong -- FT
THG shares tumble after chief hits out at short sellers -- FT