Shares in Ted Baker (TED) cheapened 3.4% to 121.9p after the quirky fashion brand confirmed it has received and rejected two unsolicited takeover offers from US private equity firm Sycamore Partners.
Pitched at 130p and 137.5p respectively, London-based lifestyle brand Ted Baker spurned the bids on the basis they ‘significantly undervalued’ the business and failed to compensate shareholders for the ‘significant upside that can be delivered by Ted Baker as a listed company’.
According to Rule 2.7 of the City’s takeover code, Sycamore has until 15 April to make another offer or walk away.
In the midst of a turnaround under CEO Rachel Osborne, clothing retailer Ted Baker insisted it is ‘a leading global brand with a strong future. The management actions taken over the last two years have put the business on a firm footing and it is now well on the way to recovery following a turbulent period.’
Ted Baker’s fortunes have collapsed in recent years.
First came a hugging incident where founder Ray Kelvin was accused of inappropriate behaviour towards staff, followed by a series of profit warnings, a new chief executive who lasted less than a year, and accounting errors where it overstated the value of its inventory.
The retailer was also forced to slash prices to compete in a heavily discounted market, which eroded profit margins.
Coming out fighting today, the board insisted it is ‘focused on delivering value for Ted Baker’s shareholders well in excess of the price offered by Sycamore’.
READY TO CAPITALISE ON ‘RETURN TO NORMAL’
Shore Capital concurred with the Ted Baker board that ‘both offers do not reflect the health of the Ted brand equity’ and despite inflation set to squeeze discretionary spend, the broker sees Ted Baker ‘in a stronger position than other competitors, ready to capitalise on the “return to normal” trends post-pandemic.’
The broker conceded that Ted Baker has been criticised for ‘relying on instinct rather than data to make decisions in the past’, though it stressed the retailer is ‘increasingly moving towards better use of data to derive its strategy. The intel gathered by the company shows that Ted is a brand naturally differentiated and recognisable, and both characteristics come with a critical appeal to consumers.
‘Ted is also positioned as a British lifestyle brand with a very accessible price point in the luxury goods space, and the price positioning gives it a highly competitive stance.’
ENCOURAGING PROGRESS
With Ted Baker just starting to see the first fruits of Osborne’s recovery strategy, AJ Bell investment director Russ Mould explained that ‘selling out now would mean letting someone else come in and steal all the credit for the turnaround plan.
‘One might argue that a bid at a small premium to the market price before the takeover news first emerged is giving shareholders a sweetener to sell out. However, any shareholder who has suffered this long and not bailed ship already will probably be looking for a much greater takeout price.
‘Even at Sycamore’s second offer price of 137.5p, that’s still significantly below the near-£30 levels at which the shares traded in 2015.
‘Ted Baker’s latest trading update shows an acceleration in sales growth, improved margins, a small year-end net cash position and encouraging comments from the management. That’s encouraging but the market has yet to be won over by the numbers, so Sycamore must be putting a lot of faith in the company’s turnaround potential.
‘There are major headwinds over the coming months for retailers given the inflationary pressures on family finances. Therefore, acquiring Ted Baker now could come with additional challenges beyond those which have already shaken the business for years.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
