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M&S Leaps on Speculation of $12 Billion Qatar Offer

Customers enter and exit a Marks & Spencer Group Plc store in Chester. Photographer: Paul Thomas/Bloomberg
Customers enter and exit a Marks & Spencer Group Plc store in Chester. Photographer: Paul Thomas/Bloomberg

March 18 (Bloomberg) -- Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, rose the most in almost four years in London trading on speculation that the Qatar Investment Authority is considering an 8 billion-pound ($12 billion) offer.

The shares advanced as much as 9.4 percent to 407.4 pence, the steepest intraday gain since March 31, 2009. They were up 7.4 percent as of 11:30 a.m., paring gains after a person close to the sovereign wealth fund said it wasn’t considering a bid.

QIA has approached banks and private equity houses, including CVC Capital Partners, to assemble a group to make a move on the London-based retailer, the Sunday Times reported yesterday, citing senior sources in London’s financial district. No approach has yet been made, the newspaper said.

Marks & Spencer declined to comment.

Today’s gain took the stock to the highest since May 2011 and above the value of billionaire Philip Green’s 400 pence-a-share takeover attempt in 2004. The shares are advancing even as Chief Executive Officer Marc Bolland struggles to win shoppers almost three years after taking the helm. Same-store sales of non-food items have fallen for six straight quarters in the U.K.

“It is an understandable time for any suitors to consider an approach for M&S because in all likelihood if the U.K. clothing performance does improve and cash flows through in due course then the share price should be much higher anyhow,” Clive Black, an analyst at Shore Capital, said in a note.

Sainsbury, Harrods

A purchase would add to Qatar’s U.K. retail investments that include a 26 percent stake in J Sainsbury Plc, the U.K.’s third-largest supermarket chain. The Gulf country also bought luxury department-store Harrods for 1.5 billion pounds in 2010.

The speculation regarding Marks & Spencer may increase “bid noise” on Sainsbury, Andrew Gwynn, an analyst at Exane BNP Paribas said in a note, though the food retailer’s pension fund deficit “is a major stumbling block.”

Sainsbury shares rose 0.6 percent to 364.8 pence as of 11:30 a.m.

A buyer of Marks & Spencer could sell property, cut costs and reduce capital spending, according to Exane BNP Paribas.

Rising prices for commercial real-estate may be attractive to potential buyers. The value of U.K. properties leased for 16 years or more has risen 15 percent since the end of 2008, Investment Property Databank Ltd. estimates, compared with a 3.3 percent average increase for all property in the same period.

Freehold Property

Espirito Santo analysts estimate that about 65 percent of Marks & Spencer’s 21 million square feet (1.95 million square meters) of selling space is freehold and that its real estate could be worth as much as 8 billion pounds.

Still, selling and leasing back property may be difficult at Marks & Spencer given the length of existing leases, the store locations and a desire internally to keep outlets, analyst Caroline Gulliver said. The stores, while considered valuable five years ago, are “now rather out of fashion,” she said.

Credit Suisse dubbed the bid speculation “more froth than substance,” citing the likely expectation of long-term shareholders for an offer at a “significant premium,” pension fund trustees in need of as much as 1 billion pounds in additional funding and property assets that have a “long tail of unattractive high street and suburban sites.”

The M&S pension fund also holds 1.5 billion pounds of the freehold property sites, Credit Suisse analyst Simon Irwin said. That helped reduce the overall pension deficit to 290 million pounds on March 31, 2012 from 1.3 billion pounds in March 2009.

An offer is “unlikely,” according to Cantor Fitzgerald Europe analyst Freddie George, though with equity markets close to record highs, speculation is likely to persist, he said.

The cost of insuring Marks & Spencer’s debt against default surged as much as 36 basis points, the most since May 2008.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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