M&S in spotlight on report of Qatari bid interest - Reuters UK

By James Davey and Sarah Young

LONDON | Sun Mar 17, 2013 5:26pm GMT

LONDON (Reuters) - Marks & Spencer was at the centre of fresh bid speculation on Sunday, with takeover talk resurfacing after a year of weak trading and a flat share price.

According to The Sunday Times, the Qatar Investment Authority, the Gulf state's sovereign wealth fund, wants to assemble a consortium to mount an 8 billion pounds ($12.1 billion) takeover of Britain's biggest clothing retailer, which also sells homewares and food.

The newspaper cited senior City sources as saying the QIA, which is already a 26 percent shareholder in Britain's No. 3 grocer J Sainsbury, has approached several large private equity houses, including CVC Capital Partners, to gauge their interest in participating, and has spoken to lenders about financing an offer.

Qatar Holding, the investment arm of QIA, and CVC declined to comment. A spokeswoman for M&S said the firm would not comment on "rumour and speculation".

Persistent speculation that private equity could be getting ready to swoop for M&S surrounded the company last August.

M&S, a mainstay of British town centres and best known for mid-priced high-quality staples such as socks and underwear, could be a trophy asset to a sovereign wealth fund and a bid may be timely as M&S faces strong headwinds.

In May, Marc Bolland, chief executive since 2010, slashed the company's three-year sales growth target, blaming the recession. In July, he shook up his general merchandise management team after the group reported its biggest quarterly sales drop in three-and-a-half years.

Then in January M&S reported a bigger-than-expected drop in non-food like-for-like sales in the Christmas quarter.

Bolland said he was confident steps being taken by a new general merchandise management team, led by former food boss John Dixon, would address this, though the impact would not be felt until autumn/winter collections hit the shops in July.

M&S investors, such as 1.5 percent holder Standard Life, have said Bolland has to get this range right to placate shareholders.

Earlier this month analysts at Credit Suisse questioned Bolland's ability to deliver a speedy turnaround in clothing, arguing M&S was hamstrung by the complexity of changes to management, the slow introduction of IT systems and a logistics platform that would not improve significantly before 2016.

OBSTACLES

With M&S shares closing Friday at 372.5 pence, giving it a market capitalisation of 6.01 billion pounds, a bid of 8 billion pounds would mean a takeover premium of over 30 percent.

In 2004, M&S fought off a 9.1 billion pounds bid approach from Philip Green, the owner of the Topshop-to-Bhs Arcadia stores group.

There remain many obstacles to any deal.

M&S was arguably in a worse state in 2004 than it is now and the environment was less competitive with, for example, Primark yet to become the force it is now.

Green was able to put together a funding package in weeks. But in the post-financial crisis era debt finance for a deal of this magnitude would be much harder to come by, while the equity component would require several private equity companies to combine their fire power.

As of the end of September 2012 M&S already had net debt of 1.86 billion pounds, and as of March 2012 had a pension deficit of 290 million pounds.

Though M&S's property, last valued in 2004 at 3.6 billion pounds, could be attractive, the situation is complicated by the retailer's pension scheme being part funded by income from a portion of its property portfolio.

Also Green failed in 2004 in part because M&S's army of private shareholders, who own a quarter of the equity, were implacably opposed to him. They may feel the same about the Qataris.

(Reporting by James Davey and Sarah Young; editing by Alison Birrane and Keiron Henderson)