CVC Capital Partners Ltd. has explored taking Marks & Spencer Group Plc (MKS) private as the U.K.’s largest clothing chain’s sales slump amid a lack of demand for its fashions, people close to the matter said.
CVC approached executives both inside and outside the company about a possible management role under private equity control, said the people, who declined to be identified as the talks were confidential. The buyout firm has not moved beyond a preliminary examination of the U.K. retailer and is not currently thought to be pursuing a bid, the people said.
Marks & Spencer shares jumped as much as 8.25 percent, the most in more than three years, in London trading. The stock was up 4.26 percent to 371.7 pence at the close, boosting this year’s share gain to 20 percent.
Officials at CVC and Marks & Spencer declined to comment.
A buyout of Marks & Spencer may be hampered by the 5.7 billion-pound ($9 billion) market value of the retailer, its debt and pension liabilities as well as the need to restructure the company, whose general merchandise sales are underperforming the market. The 128-year-old clothing and food retailer reported its first profit drop in three years in May. That comes two years into Chief Executive Officer Marc Bolland’s tenure, during which he has vowed to rejuvenate sales with a multichannel, international approach and to focus on its brand strength.
A “successful bid is highly unlikely for M&S,” said Bethany Hocking, an analyst at Investec Securities, who has a ‘sell’ recommendation said. “It would require a very large equity raising; the pension fund and trustees could represent a significant barrier; and although Marks has property, it is predominantly high-street stores.”
Same-store sales of general merchandise, which is mostly apparel, fell 6.8 percent in the quarter ended in June, the worst performance since 2008. At the time, the division’s leader, Kate Bostock, also announced plans to step down.
The seller of apparel, specialty foods and housewares was “vulnerable” to a takeover bid, Paul Mumford, a fund manager at Cavendish Asset Management Ltd. told Bloomberg News last month, citing its cheap valuation, cash generation, strong brand and food business.
On July 31, the retailer was valued at 6.2 times earnings before interest, taxes, depreciation and amortization, the biggest bargain in more than seven years. The stock has since rallied and is now valued at 10.9 times, according to data compiled by Bloomberg News.
Today, the retailer would have an enterprise value, or market value including debt, of about 7.5 billion pounds, according to Bloomberg data.
CVC attempted to buy J Sainsbury Plc (SBRY) in 2007 but was forced to scrap the 10 billion-pound offer after the private-equity firm’s partners walked away and the Sainsbury family and pension trustees opposed plans to sell property assets.
Marks & Spencer, which traces its roots to 1884, is the U.K.’s largest clothing retailer by sales. The company runs more than 1,000 stores, most of which are located in the U.K. and Ireland.
CVC, whose main office is in London and which manages a 10.8 billion-euro ($13.5 billion) European buyout fund, owns companies including car-racing group Formula One.