Off the Mark

17 Jun 2004 By Hugo Dixon

The retail billionaire’s £8.4bn possible offer wasn’t strong enough to force M&S to undress in front of a rival. It was right to reject it. After a second offer that doesn’t make the grade, Green’s assault is probably spent. But M&S mustn’t be complacent. It has much work to do.

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Philip Green made a new possible offer for Marks & Spencer, which the UK retailer's board has decided not to recommend on the grounds that it significantly undervalues the group.

Green proposed to offer not less than 370p a share in cash for the group, with a possible partial share alternative. This values M&S's equity at £8.4bn. The retailer also has £2bn of debt, bringing the total value of a bid to £10.4bn.

Green proposed to finance £7.9bn of that with debt and £2.5bn with equity. The entrepreneur and his family would put in £1.1bn of equity – up from £1.05bn in the previous proposal. An additional £1.4bn would be put in by HBOS, Goldman Sachs and Barclays Capital – up from £450m in the previous proposal.

The possible offer was conditional on a recommendation. Green reserved the right to come in with a lower offer than 370p if it was recommended.

The possible offer was also subject to the outcome of some due diligence. In particular, Green wanted to know the retail value and cost of M&S's current and committed stock. He also requested information on headcount and payroll, total costs by department, committed capital expenditure, pensions liabilities and the terms of M&S's contract with George Davis of Per Una.

M&S also ejected Green's previous possible offer at the beginning of June. Then, the entrepreneur offered 290310p a share of cash and a 25% stake of the equity in the new, leveraged M&S.

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