Bargain price

25 October 2004

The price determined by an auction probably allows the hedge funds that had bought stock in expectation of a bid to break even. M&S s shares shouldn t fall much following the buyback, given that dismal trading news would reignite takeover speculation.

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Marks & Spencer said that the strike price for its £2.3bn buyback will be 362p a share. This means that the UK retailer will buy back 635m shares, equivalent to 28% of its stock. These shares will be cancelled.

The strike price represents a premium of 1.4% to M&S's closing price on Friday, and is above the midpoint of the 332p380p range set by the retailer for its buyback.

M&S determined the strike price in a reverse auction. Shareholders could elect to sell at specific prices, or to sell at the strike price. All shareholders who offered to sell shares at a specific price below the strike price were bought out in full at the strike price. Those who opted to sell at the strike price were also bought out in full. Those who tendered stock at 362p were scaled back, getting only 43% of their shares repurchased.

M&S has recently said that likeforlike sales in clothing and homeware fell by 7.7% in the second quarter. Food sales fell by 2.6% in the same period on a likeforlike basis.

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