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Foreign buyers 'eyeing potential M&S takeover'

by LLB Editor
16th Aug 12 4:20 pm

Prominent UK retailer Marks & Spencer could be the subject of a takeover bid from an overseas buyer looking for a trophy asset, according to speculation.

M&S’s share price has dropped from 389.5p in March to as low as 312.2p in recent weeks after it recorded its poorest performance in home furnishings and clothing in three years in July. However, this recovered to 358.9p during afternoon trading on Thursday.

People familiar with the company are now reportedly confident that potential suitors are keeping an eye on the retailer’s progress with a view to purchasing it.

M&S would still hold a great deal of attraction for overseas buyers, despite its undesirable trading figures, because it remains one of the most cherished household names in the country. A sovereign wealth fund could well see it as a jewel in its crown.

Investors are said to be becoming frustrated with the performance of chief executive Marc Bolland as the retailer has performed 10% below the industry average since March.

So shareholders could well be tempted to listen to the advances of a private equity company in the market for a top business on the cheap. One investor said “shareholders are always pragmatic” and the acceptance of any potential offer would depend on “what they propose to do and what price they are offering”.

One potential roadblock to any deal could be the retailer’s market capitalisation of £5.6bn, which would result in a buyer needing to pay up £7bn once a 30% premium is added.

A number of major private equity funds would need to work together to raise the £3bn to £4bn of equity needed for any buyout, bankers believe.

The current state of the economy may also count against any potential bid. The Kohlberg Kravis Roberts deal to buy Alliance Boots for £12.4bn before the global financial crisis struck would no longer be possible, for example.

Spayne Lindsay & Co head of retail Jonathon Martin told 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.”

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