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On 18 October 2021, THG plc, formerly The Hut Group, its intention to abandon the special share rights of founder and CEO Matthew Moulding and move up to the premium segment of the Main Market of the London Stock Exchange (LSE) in 2022. THG also plans to undergo a review of its corporate governance arrangements to facilitate its application to step up to the premium segment, aligning the company to the recommendations of the UK Corporate Governance Code (UKCG).

THG, a digital-first luxury consumer brands group, debuted on the LSE in September 2020 with an opening market capitalisation of £5.4bn, the largest overall in 2020. The reason behind the decision to opt for a standard listing was to allow for the company to incorporate the special share structure whereby the CEO retained a ‘golden share’ which provided enhanced voting rights for the purpose of vetoing any hostile takeover approaches. In its 2020 IPO , the company stated that the special share is ‘intended to permit the holder to deter an unwelcome acquisition of the Company that would not, in the holder's opinion, deliver sufficient value when compared with what the holder considers could be generated by THG in the three years following Admission.’ Despite the valuable, albeit controversial, takeover defence offered by the special share, the unusual dual class share structure (DCSS) meant that THG was prevented from listing on the premium segment of the Main Market and thus prevented from gaining FTSE indexation (for more information on DCSS, see Practice Note: (a subscription to Lexis®PSL Corporate is required)) . Investor concerns over the structure saw share prices plummet 35% shortly after the company’s routine meeting with shareholders, a few days prior to the company’s decision to scrap the DCSS altogether.

Moulding announced: ‘After the anniversary of our 2020 listing we feel that the time is right to make this next step and apply to the Premium segment in 2022, thereby continuing the development of THG as we endeavour to deliver our strategy for the benefit of our shareholders, key stakeholders and employees.’

The move comes as the company attempts to restore investor confidence following the steep drop in share price. In an issued statement immediately after the shareholder meeting the company said ‘THG notes the fall in the share price yesterday following the Capital Market Event, and confirms that it knows of no notifiable reason for the material share price movement…’ However, it perhaps is not a coincidence that now that performance of parts of the business are being questioned and investors have raised concerns regarding the company’s governance, THG is dropping the special share structure, and resultant takeover protection, in order to reap the benefits of being included in FTSE indices and access index-tracking investors.

The move also comes during a time when the UK is proposing targeted measures to remove barriers to listing in order to make the London listing regime more competitive. Such measures include relaxing the listing rules around DCSS; the UK Listing Review report published by Lord Hill in March 2021 recommended that companies with a DCSS be permitted to list on the premium listing segment provided they maintain high corporate governance standards and the Financial Conduct Authority  is proposing to allow a ‘targeted and time limited form’ of DCSS within the premium listing segment subject to certain conditions (for more information, see Practice Note: (a subscription to Lexis®PSL Corporate is required)).

THG’s short-lived special share structure could be seen as evidence of a lack of investor appetite in companies that take up such corporate governance peculiarities regardless of the pending relaxation of the listing rules around DCSS. Companies may continue to see the value in established market norms.

Corporate governance is usually a defining factor in a company’s decision on whether to go for a premium listing or not. Typically, companies opt for the standard segment as they do not wish to comply with the more rigorous continuing obligations of a premium listing. In addition to allowing DCSS, a standard listing means the company does not need to comply (or explain non-compliance) with the UKCG.

However, in this case THG opting for more lenient governance standards has done more harm than good. Although THG does voluntarily comply with certain aspects of the UKCG, the less rigorous obligations required of a standard listing allowed the company to get away with combining the roles of chair and CEO, occupied by Matthew Moulding. The influence of Moulding has raised concerns among investors, not to mention the independence, or lack thereof, of Zillah Byng-Thorne, the senior independent director who previously acted as an adviser to the company and was included in THG’s share-based incentive plans until 2020.

However, in conjunction with its application to step-up to the premium segment, THG has committed to a review of its corporate governance arrangements. In furtherance of good corporate governance and an effort to display willingness to address some concerns, the board has appointed Russell Reynolds Associates to undertake a search for a new Independent Chair for the Company. 

In the company’s recent Q3 2021 trading statement, Moulding commented:

‘We have delivered a strong trading performance in Q3 and enter our peak trading period with confidence… The appointment of two independent non-executive directors and four special advisers since IPO has been hugely beneficial to the board, and we have real optimism for 2022 with the step up to a premium listing on the Main Market of the London Stock Exchange, following the appointment of an Independent Chair.’

However, despite Moulding’s confidence, share prices remain at an all-time low at £2.37, a far cry from THG’s opening price of £6.69 in September 2020 (representing a shocking 64.6% decrease in value). It looks like THG still has a long way to go to restore investor confidence.