Sycamore can relieve Ted Baker from its misery

Ted Baker at the Woodbury Common Premium Outlets in Central Valley, New York
The Ted Baker logo is seen in Central Valley, New York, U.S., February 15, 2022. REUTERS/Andrew Kelly

MILAN, March 18 (Reuters Breakingviews) - Sycamore Partners is digging in the fashion discount corner. The U.S. fund, which specialises in struggling retail assets, said on Friday that it could make a cash offer for hard-pressed British fashion firm Ted Baker (TED.L), triggering a 19% rally in its stock. For investors, the approach is a way of escaping the clutches of founder and former Chief Executive Ray Kelvin, whose overenthusiastic hugging habits led to his resignation in 2019 and a share price rout. Ted Baker shares are worth less than a tenth of their value before the scandal erupted.

For Sycamore, it looks like an easy win. Assuming the U.S. fund pays 230 million pounds, a roughly 30% premium to Thursday’s market value, it could make a chunky 30% internal rate of return by simply growing revenue at 5% a year for five years and hiking the EBITDA margin to 12%, Breakingviews calculations show. That suggests the retailer may be worth more. Despite uncertainties in Europe because of the Ukrainian conflict, Ted Baker has worked hard to reduce its discounted sales to protect margins. Sycamore has ample wiggle room to pull investors from their misery. (By Lisa Jucca)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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