Gousto cash call leaves a sour taste in the mouth

ADOMINANT CEO, a board willing to ignore the interests of small shareholders and a spiralling share price: mix the ingredients together, and deliver to shareholders.

A corporate governance row unfolding at Gousto, the healthy meal-kit delivery company, offers a salient reminder that privately owned company boards are just as capable of screwing these matters up as their more closely scrutinised listed peers.

To recap: Gousto, which attained a unicorn valuation in 2021 and trumpeted a $1.7bn price tag just over a year ago, decided late last year that it needed to raise another £50m in equity and £20m in debt to ride through an anticipated economic downturn.

So far, so sensible. It’s also hard to argue against the idea that a steep valuation discount would be required in order to get the raise away quickly.

But an 80 per cent discount to the last round, 13 months previously, for a company not obviously in distress? That is steep.

Worse, Gousto’s board, chaired by Katherine Garrett-Cox, the former Alliance Trust chief executive, excluded a number of smaller, long-standing investors from the round, while simultaneously approaching a number of institutions which are not currently shareholders in the company.

Given the heavily dilutive effect of the Series M fundraising, the indignation of the investors who were frozen out is understandable.

ISUPPOSE you can’t accuse him of not being a straight talker. Presenting London Stock Exchange Group’s full-year results last week, CEO David Schwimmer was asked about the sudden fears of an exodus from the UK equity markets. The question was prompted by the announcement from building materials group CRH that it plans to shift its listing to the US, in the wake of Flutter Entertainment’s decision to launch a similar move. Then at the weekend, I reported that Wandisco, the data company, was preparing to establish a dual listing in the US – which the company then confirmed on Monday.

Schwimmer’s nonchalant response? “If companies are going to make decisions when most of their business is in the US, that sort of is what it is.”

The company’s response is that over 90 per cent of shareholders were eligible to take part in the open offer. It’s baffling that Gousto hasn’t clocked that this marginal squeezeout makes its conduct worse, not better.

It’s hard to square Gousto’s trumpeted B-Corporation status with the actions of a company whose founder sold shares at a $1.7bn valuation 13 months ago, only to buy more stock at a sub-$300m valuation in a cash call that was not open to all of his investors.

Shouldn’t Boldt, conscious of the longstanding support of his early backers, have declined the opportunity to take part? Or better still, insisted that all shareholders be included in the open offer?

I understand that the terms of the latest share sale included a 3x preferred return clause, meaning that investors in the latest round will receive the first £150m in proceeds from a future sale of the company.

A Gousto spokesman acknowledged that Boldt had participated in the recent cash call, spinning it as “reflecting Timo’s continued commitment to the business and his belief in its future growth prospects”.

Beyond that, requests to Garrett-Cox and Powerscourt, the company’s financial PR adviser, are met with stony silence. Gousto is now, in valuation terms, an erstwhile unicorn. If it continues to harbour ambitions for a future public market listing, it has some serious growing up to do if it isn’t to risk going the same way as the mythical creature.

I understand some colleagues at the LSE subsidiary were somewhat displeased by their boss’s remark. The Exchange may be a mere utility and relatively insignificant in the context of LSEG’s earnings, but its symbolic importance to the City and the UK economy remains profound. Schwimmer would do well to remember that.