Shares in retailer Marks & Spencer (MKS) have hit their highest point since November 2010, spurred by weekend bid rumours. The stock is up 7.4% today to 400p, yet the high street player remains silent over talk that it could be taken over by a Gulf sovereign wealth fund for £8 billion.
The Sunday Times reported yesterday (17 Mar) that the Qatar Investment Authority is trying to pull together a 'powerful bidding consortium' to snap up Marks & Spencer. This is likely to include private equity houses.
The press report says that trading volumes in Marks & Spencer shares last Thursday (14 Mar) were nearly three times the normal daily volume. British buyout firm CVC is named as a potential interested party with rumours that it considered a bid for the retailer last year.
Marks & Spencer last faced a takeover bid in 2004 from Sir Philip Green at 400p per share – the same as today's share price. The Qataris already have a strong position in British retail, owning 26% of Sainsbury's (SBRY) and Harrods.
Espirito Santo analyst Caroline Gulliver reckons any bidder today would have to pay 480p per share for Marks & Spencer. She reckons the retailer should be valued on nine times forecast earnings, which equates to a 310p fair value price. Yet Friday's closing price of 373p puts the retailer on 10.9 times forecast earnings. Gulliver says any potential bidder would probably have to pay a 30% premium for control of the business, hence the mooted 480p takeout price.
The Espirito analyst says any bidder would have to pay an enterprise value approaching £10.5 billion, which would include £2.5 billion of debt and £290 million pension liabilities.
Freddie George, a retail analyst at Cantor Fitzgerald, doesn't reckon a bid is likely in the near-term but notes that 'while equity markets are close to record highs takeover speculation is likely to remain over the medium term'. He notes that the Qataris are currently sitting on a loss with their Sainsbury's investment, even after dividends, having paid more than 500p per share versus today's trading price of 364.7p.