* M&S shares rise 9.4 pct, 12-month high
* Qatar Holding not planning a bid for M&S - source
* Analysts, investors say bid a possibility
By Dinesh Nair and James Davey
DUBAI/LONDON, March 18 Marks & Spencer
shares surged on Monday on speculation that a faltering
turnaround effort and flagging profits have left Britain's
biggest clothing retailer vulnerable to a takeover.
Investors piled into the stock after a newspaper reported
that the Gulf state of Qatar was planning a bid, sending the
shares up 9.4 percent to a 12-month high. A source close to
state-owned Qatar Holding denied the report, but the stock was
still up 7.4 percent at 1130 GMT.
Analysts and investors said Marks & Spencer (M&S) could be a
target for a private equity firm.
The company, which also sells homewares and food, traded
poorly in 2012 and in January reported a bigger-than-expected
drop in non-food like-for-like sales for the Christmas quarter.
"M&S is vulnerable to a bid, as trading and profits are
under pressure, with nothing to show yet for the big investments
made in online systems and warehousing and the changes in the
clothing team," said independent retail analyst Nick Bubb.
M&S declined to comment.
Marc Bolland, chief executive since 2010, has said he was
confident steps being taken by a new general merchandise
management team, led by former food boss John Dixon, would
address the poor recent performance, although the impact would
not be felt until autumn/winter collections hit the shops in
M&S investors such as Standard Life, which holds 1.5
percent of the company, have said Bolland has to get this range
right to placate shareholders.
Although one senior retail banker gave the probability of a
takeover at just 5 percent, some analysts said a recent
improvement in the debt markets and the amount of cash currently
in private equity meant a bid could happen.
"You could argue that the business could support quite a bit
of debt if it wasn't having to pay a dividend, making a private
equity-style bid possible, but the trading outlook looks rather
uncertain," one of M&S's top 20 shareholders told Reuters.
The Sunday Times newspaper had said the Qatar Investment
Authority wanted to assemble a consortium to mount an
8-billion-pound ($12.1 billion) takeover.
The newspaper cited senior City of London sources as saying
Qatar, which is already a 26 percent shareholder in Britain's
No. 3 grocer J Sainsbury, had approached several large
private equity houses, including CVC Capital Partners,
to gauge their interest in participating, and had spoken to
lenders about financing an offer. CVC declined to comment.
A source close to the fund told Reuters that Qatar Holding,
the investment arm of the Gulf state's sovereign wealth fund,
was not considering a bid.
With an investment appetite of about $30 billion every year,
Qatar has emerged as one of the world's most aggressive
investors, piling on stakes in companies ranging from top-tier
banks such as Credit Suisse to carmaker Porsche
and miner Xstrata.
The sovereign fund's investments are widely seen as
opportunistic, not following a specific strategy, as it has
purchased a wide range of assets globally. It likes to engage in
bilateral discussions with the seller and generally does not
invest in a consortium.
Shares in M&S were up 27.5 pence at 400 pence at 1130 GMT,
valuing the business at 6.45 billion pounds. However, its bonds
weakened sharply and the cost of protecting its debt against
In 2004 the retailer fought off a 9.1 billion-pound bid
approach from Topshop owner Philip Green.
There are many obstacles to a deal now.
M&S was arguably in a worse state in 2004 than today and the
environment was less competitive with, for example, rival
Primark yet to become the force it is now.
At the end of September 2012 M&S had net debt of 1.86
billion pounds, and as of March 2012 had a pension deficit of
290 million pounds.
While its property, last valued in 2004 at 3.6 billion
pounds, could be attractive to private equity, the situation is
complicated by the retailer's pension scheme being part funded
by income from a portion of its property portfolio.
"Some of the premium freehold sites would be attractive, but
1.5 billion pounds is tied up in the pension partnership and we
believe there is a long tail of unattractive high street and
suburban sites," said analysts at Credit Suisse.
They say long-term institutional shareholders and M&S's army
of private investors would require a significant premium, having
seen the shares below 4 pounds for most of the past decade,
while the pension fund trustees could also demand additional