Ted Baker shares jump on takeover chatter
Out-of-fashion British clothing and accessories brand Ted Baker (TED) rallied to 951.5p at the start of the week following reports founder and former chief executive Ray Kelvin is considering a private equity-backed buyout to take the challenged retailer private.
The mysterious Kelvin resigned as CEO earlier this year following a company probe into ‘hugging’ claims made by some employees, an allegation he denies.
Yet according to The Mail on Sunday, Kelvin has indicated he would support a buyout that would take Ted Baker private under the existing management team led by former finance director and new CEO Lindsay Page.
Though he denies all misconduct allegations, Kelvin agreed to resign as CEO and a director in March. However he still owns approximately 35% of the company and is unarguably the creative inspiration behind Ted Baker, which he founded as a single shirt specialist store in Glasgow over 30 years ago.
Shares in Ted Baker have fallen fast this year following a flurry of damaging earnings alerts. On 11 June, the British clothing brand warned profits for the year to January 2020 would fall significantly short of forecasts amid margin pressure and consumer uncertainty in key markets. It cited a particularly challenging US market exacerbated by womenswear range issues which were also behind an online growth rate slowdown.
At the time Peel Hunt said the scale of the profit warning would ‘raise eyebrows’. The broker downgraded its full year pre-tax profit forecast from £70.5m to £51.5m, dragging earnings per share and dividend estimates down from 123.5p to 90.2p and from 61.5p to 45p respectively.
Following the share price tumble and based on these lowered estimates, Ted Baker now trades on prospective price-to-earnings ratio of 10.5-times with a 4.7% dividend yield.
With the shares on sale, Kelvin may not be the only party considering a bid, although shareholders including Baillie Gifford, Aviva and Schroders won’t want to see a strong brand able to generate robust gross margins and with global potential picked off by any acquirer on the cheap.
‘Sales levels do not suggest a brand in turmoil,’ said Peel Hunt in June, ‘although earnings recovery may prove protracted in our view, leaving the group vulnerable to bid threats, particularly for potential acquirers that can offer the potential of accelerating Asian distribution.’
Robin West, co-fund manager of Invesco Perpetual UK Smaller Companies (IPU), in June told Shares that he rated Ted Baker as a ‘very good quality’ business. He added: ‘It has an under-exploited brand globally and we think its equity rating doesn’t reflect the growth.’