M&S Pays Shareholders in Takeover Defense :: Namibia Internet Gateway cc ::

Articles: M&S Pays Shareholders in Takeover Defense

Posted by admin on Monday, July 12, 2004 - 06:21 AM

Marks & Spencer (MKS.L: Quote, Profile, Research) said on Monday it would sell its financial services arm and return 2.3 billion pounds ($4.26 billion) to shareholders as it tries to win their loyalty and fend off a 9.1 billion pound bid attempt.
Chief Executive Stuart Rose, parachuted in six weeks ago to see off Monaco-based tycoon Philip Green, said the company will sell M&S Money to HSBC Holdings (HSBA.L: Quote, Profile, Research) for 762 million pounds. A tender offer for shares, to be priced at the end of next month, will pay stockholders the equivalent of 100p a share. "The sum total of all this demonstrates that Philip Green's offer significantly undervalues the business," Rose told reporters on a conference call. With 375 stores, 10 million shoppers a week and 66,000 employees, Britain's best known retailer of clothes food and homewares also unveiled a range of measures it hopes will boost the company's flagging performance and share price. M&S became vulnerable to Green's second bid attempt in four years as it lost out in fashion to Next (NXT.L: Quote, Profile, Research) , in children's wear to Asda (WMT.N: Quote, Profile, Research) and in food to grocer Tesco (TSCO.L: Quote, Profile, Research) . Rose, who spent the first 17 years of his career at M&S, confessed M&S is now seen as formal, middle-class and boring. His turnaround strategy includes a move toward wants quicker supply chains, fewer ranges and a new ad campaign under the "Your M&S" brand concept. NO QUICK RESOLUTION While Rose has long wanted to return to M&S to help restore its former glory, Philip Green sees M&S as the ultimate challenge after his turnarounds of the Bhs department stores and fashion chains including Top Shop. Rose, who will be embarking on a grueling round of meetings with shareholders as he tries to win them over, doesn't expect a quick resolution to the frenzied bid battle. "I wouldn't expect to get the thumbs up or thumbs down by this afternoon," he said. "We've got lots of meetings lined up for the rest of this week." A spokeswoman for Philip Green said he was waiting to see how the market reacted. Green has said he will know within 48 hours whether M&S shareholders are backing the company or him. Shares in the company were up 0.6 percent at 370-1/4p by 1015 GMT, valuing the 120-year old firm at 8.4 billion pounds. The shares were trading at 290p before Green revealed his interest on May 27. Hedge funds hoping for quick returns have been piling into M&S stock in recent days, and the company believes the funds now hold 15-20 percent of the stock. "THEY'VE DONE AS MUCH AS THEY COULD" M&S is trying to convince investors that its own turnaround plan will boost the value of the firm beyond Green's 400p a share takeover proposal, which M&S says is inadequate. "I think they've done as much as they possibly could," said Paul Mumford, a fund manager at M&S shareholder Cavendish Asset Management, and early reactions from analysts were positive. "Very punchy. Much bigger than expected profit forecast upgrades coming through I suspect and a brilliant bit of financial engineering on the sale of the financial services business and return of cash," said Nick Bubb of brokers Evolution Beeson Gregory. Tony Shiret, an analyst at CSFB came up with a valuation of 430p a share on the new initiatives: "It's a material change but doesn't look like an absolute knockout," he said. M&S said the cash return will be funded in part by bank borrowings and partly by the sale of the finance division, which was started in 1985 and has grown to become one of the top 10 credit card providers in the UK with operating earnings of 109 million pounds last year. A joint venture will mean the two firms share future costs and profits from the financial services business. Rose said the firm expects to retain investment grade credit ratings after the share tender and said future excess cash will be used to buy back stock. Although a revaluation of the property stock priced M&S's real estate at 3.6 billion pounds -- 1.4 billion more than the current book value -- Rose said he was not considering property sales. PRODUCT NOT PROCESS The CEO told reporters M&S had been too focused on "process not product," as he rids the firm of distractions from the core clothing business by closing the expensive Lifestore furnishing chain and halting the roll-out of Simply Food. He plans to spend 400 million pounds a year from 2005/6 in modernizing dowdy stores. M&S also announced plans to buy the Per Una youth range for 125 million pounds from designer George Davies, who will continue to run the brand for at least two years. Rose identified potential cost savings of 250 million pounds in 2005/6, rising to 320 million in 2006/7. This will include the loss of around 650 jobs. A current trading update showed like-for-like sales down 2.8 percent in its first quarter compared with a drop of 3.4 percent in the previous quarter.

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