18th Mar 2022 12:02
(Alliance News) - With Sycamore Partners Management LP expressing interest in Ted Baker PLC, traders have realised that there may be more suitors waiting to pounce on other UK lifestyle retailers which have seen their fortunes tumble since the pandemic.
But supply chain problems and searing inflation offer further challenges for the retailers in the near-term at least, which could ward off potential buyers.
Ted Baker PLC received interest from across the Atlantic, as a New York private equity firm confirmed it is considering a takeover offer.
New York private equity firm Sycamore Partners Management LP on Friday confirmed it is in "the early stages" of a possible cash offer for the London-based clothing retailer.
Sycamore's confirmation came in response to an article by Sky News early on Friday morning that first reported the approach.
"[Sycamore] was also reported to be among the suitors circling Boots, Britain's biggest chain of high street chemists, although City insiders have expressed scepticism about Sycamore's eventual involvement in the auction," Sky's Mark Kleinman noted.
https://news.sky.com/story/american-private-equity-firm-sycamore-has-designs-on-fashion-chain-ted-baker-12568677
"Sycamore appears to have spotted an opportunity to step in and buy the company while its valuation remains low and to help with the recovery efforts," said AJ Bell Investment Director Russ Mould.
Ted Baker has suffered a slew of setbacks in recent years which have sent the stock lower.
First, in 2019, its former chief executive Ray Kelvin was accused of sexual harassment by some employees. Then, the firm was plagued by several profit warnings, went through three CEOs in about year and, in January 2020, the business revealed that auditors had found a GBP58 million hole in its accounts as its stock inventory was overstated.
Rachel Osborne has been at the helm since March 2020.
All of this, coupled with the pandemic, sent its stock plummeting. The stock went from 1,250.72 pence apiece at the end of 2018 to 341.83p towards the end of 2020.
The stock was up 20% to 118.16p each in London on Friday just before midday.
Turning back to its acquisition, Sycamore noted that it has until April 15 to announce a firm intention to make an offer for Ted Baker or to withdraw, the so-called regulatory put-up-or-shut-up deadline of 28 days. It said there is no certainty that any offer will be made, and no direct approach has been made yet to Ted Baker's board.
It is being advised by Numis Corp PLC, the London-based stockbroker and investment bank.
Noting Sycamore's release, Ted Baker responded:
"Ted Baker continues to make good progress with its transformation and the company is emerging from Covid as a stronger and more financially sustainable business.
"The board is confident in the company's independent prospects and would evaluate any offer for the company against the strong shareholder value creation that it believes can be delivered as a standalone company."
It urged its shareholders to take no action at this time.
Ted Baker reported in late February that sales in its final quarter ended January 29 were up 35% year-on-year despite headwinds from Omicron. The retailer had edged towards financial recovery from the pandemic in its first half ended on August 14, as its pretax loss narrowed to GBP25.3 million from a GBP86.4 million a year before.
"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," said AJ Bell's Mould.
Marc Dench, formerly of fellow clothing retailer Joules PLC, joined Ted Baker as the new chief financial officer earlier this month.
Shore Capital analysts Eleonora Dani and Clive Black said Ted Baker may not be the only UK lifestyle brand with a target on its back.
"While undoubtedly all the attention will be on Ted shares this morning, we see the potential for read-across to other UK lifestyle brands, Superdry PLC and Joules."
Both brands' shares have lost around 35% and 72%, respectively, over the past year, but retain "a varying degree of brand equity" in Shore Capital's view.
On Friday, Superdry's stock gained 2.6% to 169.20 apiece and Joules shares were up 6.7% to 55.47p each.
AJ Bell's Mould noted there may be additional challenges ahead for retailers.
"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," Mould said.
By Elizabeth Winter, [email protected]; and Greg Roxburgh, [email protected]
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