Kelso ups its stake in THG and calls for potential spin-off of its nutrition business

Activist investor Kelso increases stake in THG, calls for possible spin-off of ‘hugely relevant’ food business amid shift away from unhealthy foods

  • Kelso has increased his newly acquired minority stake in THG to 8 million shares
  • Shift away from sugar and chocolate shows ‘relevance’ of nutrient-poor THG
  • Giants like Nestle could eventually take over THG’s nutrition business, says Kelso

Kelso Group has increased its recently built minority stake in THG as it reiterated its belief in the ‘significant net asset value’ of the food division of the e-commerce business despite mounting group losses.

THG, which recently received a preliminary takeover proposal from private equity firm Apollo, saw annual losses almost triple to £550 million last year.

But Kelso believes that “the shift in consumption from chocolate and sugar to health and nutrition” indicates the “tremendous relevance” of THG’s nutrition division, which is behind the Myprotein brand.

THG food arm, owner of the Myprotein brand, to earn £675 million in revenue by 2022

The investor believes this shift will eventually lead to THG’s nutrition business being picked up “by one of the major global food and beverage companies” as they look to capitalize on the growing wellness trend.

“In our view, this strategic shift is similar to the major oil companies diversifying into renewables and highlights the tremendous relevance and underlying value of THG Nutrition,” Kelso told investors as it increased its stake to 8 million shares.

Kelso also said any offer for THG as a whole should “clearly reflect this underlying asset,” adding that if no offer is deemed acceptable, the board should consider a spin-off from its nutrition division.

Kelso noted that THG’s nutrition business brought in about £675 million in revenue last year, up 2.4 per cent compared to 2021.

The comments come as THG became the latest UK company to be targeted by private equity predators after receiving a “very preliminary and non-binding indicative proposal” from Apollo Global Management on Monday.

The news sent shares in THG up nearly 50 percent, though they crashed 20 percent a few days later as the group posted record losses for 2022 and warned of a slump in earnings so far this year.

In a rollercoaster week for the stock, THG shares jumped 5.3 percent to 89.5 p in morning trading on Friday following Kelso’s move.

The group pointed to recent reports about a group of investors in Nestlé demanding that the world’s largest food company reduce its reliance on the sale of unhealthy products to achieve long-term success.

Kelso said it had identified 12 global food and beverage companies, including Coca Cola, Pepsi, Mondelez and Kraft Heinz, which it said could be “too focused on selling chocolate or high-sugar products.”

“The food and beverage companies we refer to above have huge offline global distribution networks that could significantly increase MyProtein offline sales,” it added.

“In return, we believe that MyProtein’s direct-to-consumer digital model would be very attractive to many of these companies.”