Last month Marks and Spencer (M&S) reported its worst performance in clothing and home furnishings for three years. In addition the retailer’s share price has fallen by 10 per cent since March leading to speculation that the high street favourite could be the target of a takeover bid.
In July M&S posted a 2.8 per cent drop in like for like sales and a 16 per cent fall in pre-tax profits. The poor trading figures led to chief executive Marc Boland coming under fire and the announcement of a management shake-up. Despite these difficulties, M&S remains one of the UK’s best known brands and could now be attracting the attention of private equity companies according to the Financial Times.
“There is no doubt private equity will continue to run the slide rule over M&S – it’s still an attractive business – but realistically it’s a very large transaction and the debt markets remain difficult,” Jonathon Martin of financial advisors Spayne Lindsay & Co told the newspaper.
One of the most attractive assets is the retailer’s extensive commercial property portfolio. M&S owns land and properties valued between £4 and £4.5 billion but it is believed it would be difficult to raise finance on the strength of these assets. This is because in 2006 £1.5 billion of property was tied to the company’s pension scheme which could account for almost half of the portfolio.
Another stumbling block to a takeover is that while M&S generates a lot of cash, much of it is eaten up by interest payments and dividends or reinvested in the commercial properties themselves. Bethany Hocking, an analyst with Investec Securities, says that while these factors are an obstacle to a potential takeover “a bid is not totally unfeasible.”
On the other hand, others insist that too much equity would be required and there is simply too much debt involved. However, while M&S successfully resisted a planned takeover by Sir Philip Green eight years ago, the board may not put up so much resistance today.
“I’m sure if someone came along with a bid they (M&S) would encourage it,” one retail advisor concluded.
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I love M&S, I hope it doesn’t disappear!
So do we Beverly, it is a high street legend.