Rose has the measure of Green in battle for M&S
Having already dismissed out of hand two offers for the high street chain, Marks & Spencer boss Stuart Rose seems to have seen off his old rival, UK billionaire Philip Green – at least for now, says Geraldine Lambe.
In May, UK billionaire Philip Green fired an opening salvo across the bows of troubled UK retailer Marks & Spencer, with a bid worth up to 310 pence, plus a 25% stake in the company formed to make the bid. M&S rejected the offer as derisory but swiftly ditched struggling management and drafted in new CEO Stuart Rose to defend against Mr Green’s bid and turn the company round. Mr Rose, who has locked horns with Mr Green on a previous M&A deal, subsequently rebuffed the tycoon’s second offer of “not less than 370 pence”, saying that it still undervalued the high street chain.
The offer had an immediate impact on the retailer’s share price: M&S shares have fallen for five of the last six years but shortly after Mr Green’s offer, the stock jumped by 28%; following both rejections, shares began to slide back. According to Bloomberg, M&S stock fell 2.3% in morning trading on Thursday June 17, although it remained 22% higher than the 290p level before the first bid approach.
Bond and credit default swap (CDS) spreads moved dramatically the other way as soon as the first bid was announced: according to data from Credit Market Analysis (CMA), bond spreads widened by 170.4 basis points to 210 between May 26 and May 28, while three-year CDS spreads leapt out by 183 basis points to 240; analysts attribute the swings to fears that a successful bid would see the M&S balance sheet weighed down with debt with the risk of a credit rating downgrade. Following the rejected offers, spreads have come in to 167.9 and 159, respectively.
Few commentators believe that Mr Rose is under pressure to accept Mr Green’s offer at present. “Securing Rose to run M&S is seen as a bit of a triumph, and it seems likely that major investors will give Stuart Rose the chance to turn the company around before pushing for him to take an offer, even if it is improved a second time. Green and Rose both offer the same value to the company in terms of management skills, so why switch one for the other at this stage,” says one London-based analyst.
In fact, he argues that the pair’s history – which includes haggling over the price of the Arcadia group before Mr Rose negotiated the sale to Mr Green in 2002 – will stand Mr Rose in good stead if M&S does go up for sale in the future. “Rose has a very good track record; he did an excellent job turning round the Arcadia chain and then pushed Philip Green to get an even better price after he had made what he said was his final offer.”
