Marks & Spencer case study

Group members

Aman Jain

Muskan Goswami

Sparesh Chaturvedi

Mehul Tank

1. Philip Green has a history of M&A deals - What do these deals have in common?
 These deals are all retail departmental store. Mr Green is buying faltering retail groups and
repackaging them for sale, Mr Green is interested in any fascinating opportunity in UK retail
sector where he believes he can add value. He bought Jean Jeanie, a struggling retail business,
for roughly half a million pounds, united it with Bonanza, turned it around, and sold the
combined group to Lee Cooper for £7 million. Mr. Philip Green purchases Owen Owen, a 13-
store chain, in 1994. Kid's HQ was established by Green in four of his Lewis's and Owen Owen
stores. The company was then stripped of its assets, including the closure of Owen Owen's
main Liverpool store and branch closures. In 1996, Green sold eight Owen Owen stores to
Alders for £23.6 million. He also negotiated for Sports Division to purchase Olympus Sports
from Sears for a knock down price. After rejecting an earlier 340p per share cash offer, the
Sears board approved an improved cash offer of 359p per share from a consortium chaired by
Philip Green, the retail tycoon and backed by the mysterious Barclay brothers. Olympus was
purchased from Sears for £20 million and afterwards sold to JJB for £290 million in 1998.
Following a bidding war with another rag trade magnate, Shami Ahmed, Green took Mk One,
then known as Mark One, out of administration in February 1996. Green is said to have tried to
sell the company several times since then. MK One, which caters to youthful, fashion-
conscious customers, has traditionally found it difficult to compete with rivals such as New
Look and Peacock, albeit it is said to have just turned a profit. PHILIP Green's Mark One
bargain clothes chain has been sold for an estimated £50 million to a management buyout team.
He acquired Mark One out of receivership and sold 40 percent of his stake in 2003. With the
purchase of the Shoe Express outlets from Sears, retail entrepreneur Philip Green had taken
another step forward in the growth of his mini-high street empire. Mr Green is optimistic that
 he can turn the stores around. In 1999, the Barclay brothers financed the purchase of Sears for
roughly £550 million, and the subsequent sale of the company netted over £150 million over
the next six months. In January 1999, January Investments purchased Sears plc on behalf of
Philip Green. The womenswear division (which included Warehouse, Richards, Wallis, and
Miss Selfridge) was later sold to Arcadia Group.

2. What was the Rationale of Philip Green behind the acquisition of M&S? What were the
key drivers?

Answer- He was able to buy a number of businesses for a knock down price, the bulk of which
were in receivership or financial difficulties. The basic rationale of this deal was also to
takeover gain market share reshuffle business practices in order to generate profits. By selling
some of his past investments, he was able to turn the companies around and make a significant
profit for himself and his investors. Most of his turnarounds centred on lowering expenses and
selling non-core businesses or assets rather than raising sales.

Main Key drivers could be:

 Poor financial outcomes- From 1997 to 2001, the share prices fell by close to two
third to 200 pence per share and profits diminished from more than q million
pounds in 1998 to £145 million in the year ending 31st march 2001. Because of
this, bid appeared to be reasonable and Green felt this was the perfect opportunity to
make his turn and takeover the organization.

 Chairman Resigns-During organization's difficult time, The Chairman Luc

Vendevelde additionally surrendered expressing that he was unable to dedicate
sufficient opportunity to a striving organization. This put a great deal of squeeze on
the governing body and financial backers and investors additionally began losing
trust in the organization.

 Trust Issues among the shareholders: The shareholders believed that the company
had mismanagement and if the takeover happens, the organisation would be in a
better position and that the share prices would go upto 445 pence per share. This
worked in Green’s favour and he had support from the shareholders also which
made him stronger in the position
3. The acquisition of M&S by Philip Green - What type of acquisition attempt was this?
Horizontal/Vertical/Conglomerate and Supplementary/Complimentary and
Hostile/Friendly?
 Hostile takeover: The term "hostile takeover" refers to a company being purchased by another
company against the former's will. The target company in a hostile takeover is referred to as
the target, while the acquirer is referred to as the acquirer. In a hostile takeover, the acquirer
approaches the company's shareholders directly or fights to replace management in order to
gain approval for the acquisition. When a firm believes a target is undervalued or when
activist shareholders want a company to change, hostile takeovers may occur. Green
requested access to secret material as part of the bid terms and stated that he would not be
making a hostile bid. He stated that 20 pence per share, or £450 million, of the cash element
of the offer was contingent on Marks & Spencer disclosing information of their confidential
deal with George Davies, the designer of the Per Una women's fashion line. However, in his
final offer, Green also announced that the largest stakeholder in Marks & Spencer, Brandes
Investment Partners, based in the United States, had backed him up. Brandes Investment
Partners held 11.7 percent of Marks & Spencer. Green said that, in addition to Brandes, he
had the conditional support of other shareholders, bringing the overall share of shareholders
who supported him to 34 percent.

4. Describe and analyse the Defence tactic employed by M&S?

 Following the disclosure of Marks & Spencer's financial year deficits, rumours began to
circulate that Green was mulling a bid for the company. This compelled Green to
acknowledge that he was interested, that he planned to submit a bid in early June, and that he
and the banks had achieved an agreement in principle on the deal's financing. Marks &
Spencer hired Rothschild and Cazenove to assist on its defence strategy shortly after the
announcement, in addition to Morgan Stanley, which had been hired at the end of 2003. With
immediate effect, the board of directors voted to remove the Chairman and CEO and replace
them with Stuart Rose as Chief Executive and Paul Myners as Interim Chairman. The
defensive strategy's first phase was to address Marks & Spencer's trading issues. Rose
brought with him two industry specialists from Arcadia: Charles Wilson, who would oversee
property, IT, and supply chain, and Steve Sharp, who would oversee marketing, retail
development, and design. They take into account two key factors: competition and the fact
that deflation was a significant issue in UK retail. "Management increased profits because
they believed Marks & Spencer represented quality and that customers would come anyway."
Rose stated that he would present his complete restructuring plan in six weeks, focusing on
the most serious issues, such as branded apparel. enhancing the company's ability to make
swift decisions and improving the corporate culture, improving systems, supply chain, and
retail process and operations, and looking at the property portfolio to determine how best to
liberate the value locked up in it. Rose replaced Rothschild with Citigroup, which he knew
well, in defending Marks & Spencer against Green's advances, alongside Morgan Stanley and
Cazenove. Rose also switched Tolchan Communications as Marks & Spencer's PR advisor.
Green's solicitors were barred from acting for him in his takeover attempt after Marks &
Spencer won an injunction. Because of an alleged conflict of interest, Marks & Spencer
moved to court to prevent Green's law firm, Freshfields Bruckhaus Deringer, from working
on the deal. Green was questioned by the takeover panel regarding his statement that if the
deal was reported to the Competition Commission, he would withdraw it. Green defined the
market more broadly with a post-acquisition 16 percent of the overall womenswear market,
which would not be high enough to be referred to the Competition Commission, whereas
Marks & Spencer argued that he would then control 31 percent of the women's lingerie
market in the UK, which would be high enough to be referred to the Competition
Commission. Rose also made substantial changes to the board of directors and top
management. It was a sign that they were serious about what they were saying. Investors felt
that under Stuart Rose's leadership, the value of Marks & Spencer shares would increase due
to the significant cost savings and improvements. Marks & Spencer sought that the UK
Takeover Panel apply a "put up or shut up" clause. Green had 28 days to submit a formal bid
(and declare the terms and circumstances of a comprehensive offer) or walk away from
Marks & Spencer for six months, according to the Panel. ose had a discussion with analysts to
reveal the much-anticipated restructuring plan. The three-year plan was created to show that
the Marks & Spencer board of directors had not acted arbitrarily when deciding that Philip
Green's proposed bid was grossly undervalued. It was built on a foundation of 'back to basics'
concepts. The plan also includes £320 million in annual cost savings, the sale of a portion of
Marks & Spencer's credit card business to HSBC for £762 million, and the return of cash to
shareholders at 100 pence per share, totaling more than £2.3 billion. The money would come
from the sale of the credit card business, as well as additional borrowing that would be funded
by a £1.4 billion revaluation of the Marks & Spencer property estate. Standard Life
 announced their support for Marks & Spencer after Rose outlined the retailer's restructuring
plan. This was a major setback for Green, as David Cumming, the Head of UK Equities at
Standard Life, was well-liked in the City. The UK Takeover Panel forced Green to declare on
July 13 that buying Marks & Spencer might cost him up to £11.1 billion. Marks & Spencer
was valued at £9.1 billion, which was £2 billion higher than his previous 400 pence per share
offer. The increase reflected the additional expense of buying out the bondholders if he made
a formal offer for the business and it was accepted. Marks & Spencer board promised on 14
July that they would not back down on their refusal to expose their records to Green. They
claimed that because Green's Bhs and Arcadia were direct competitors of Marks & Spencer,
revealing the books would expose trade secrets to them. Green had announced his third
informal offer as final, but he couldn't raise it since the UK Takeover Panel's regulations state
that a bidder can't raise an offer any higher for the next six months until the company receives
a third-party offer. Green declared on July 15 that he was dropping his 400 pence per share
offer.
5. What role did Information and Signaling to play in this case study?

Answer- Made Marks and Spencer as the objective for Green - After the declaration of the
entire year results, as tales spread with regards to Green considering to purchase Marks and
Spencer, it constrained him to affirm that he was intrigued and driven him to make a proposal
for the equivalent.

• Readiness and protective moves by Marks and Spencer - It made Marks and Spencer to
a benefit and consequently the organization could set itself up in advantage for the
impending obstructions. This prompted the arrangement of Stuart Rose as the Chief
Executive, and Rose's pressing assignment was to protect the organization from the
advances of Green.

• Hypothesis prompting cost increment - With all the data moving around, the theory
drove Green to rethink the offering proposition and raise his cost from 340 to 360 pence
per share. The organization didn't acknowledge this cost too which prompted further
ascent of deal by Green, and at last the last deal was made at 400 pence per share.

• Reasonable play - As Green's goals were considered dicey in view of his activities
during the period of deal, the organization could demand the UK Takeover Panel to summon a
'Quit being all talk and no action' proviso. Furthermore hence Green had to make a proper bid
with clear agreements.
6. Based on the financial Statements of M&S, how would you describe the health of the
company?

Answer- The organization's gathering turnover has a sluggish and negligible improvement in
2004 when contrasted with 2003. The significant piece of the turnover of the organization
comprises of the United Kingdom retail business. The monetary administrations give minimal
advantages to the organization. A similar example is found in the working benefit before
extraordinary things of the firm when contrasted with 2003. It is seen that in 2004 the benefits
from the monetary administrations business of the firm diminished then again the benefits from
UK retail expanded to 7293.7 million euros in 2004 from 7027.1 million euros in 2003 which
demonstrates M&S doesn't have a lot of aptitude in the field of offering monetary types of
assistance and it has a decent extension in the retail business. To improve and acquire
extraordinary change in the benefits if the general firm. It should zero in additional on
advancement and further developing the retail business. There has been an expansion of 166
million euros in capital use of the organization in 2004. While expansion in the capital
consumption, the organization has likewise acquired benefits from the offer of resources which
shows great interest in the complete benefits of the firm. The interest cost of the firm expanded by
approx. 5 million euros in 2004 while different charges diminished by approx. 12 million euros.
According to the asset report we can deduce that the organization has better money close by when
contrasted with 2003. It has not put more in substantial resources in 2004 while the speculations
have diminished in 2004 to 10 million from 29 million out of 2003. Then again, the transient
liabilities of the firm likewise expanded yet not by and large
7. Why did Philip Green ultimately withdraw his offer on 15 July?

Answer- The directors of Marks & Spencer refused the due diligence request of Green. Green had
offered third informal letter as the final one on 15th July. As per the rules of UK Takeover Panel
after 3 informal letters the bidder cannot increase an offer further until six months unless the
company receives another offer from the third party. Hence, Philip Green had to ultimately
withdraw his offer of 15th July

8. In your opinion, should M&S shareholders have taken the final final final offer of Philip
Green?
Answer- M&S was having problems greatly; under its 10-year capital structure, its attrition remained
stagnant and revenues before tax decreased significantly until 2001. Philip Green may have provided the
much bounceback for the organisation that he has been famed for.