An American private equity firm is considering a takeover offer for Ted Baker, prompting shares in the fashion brand to rise by almost a fifth.
Sycamore Partners Management, a New York firm, confirmed that it was in the early stages of considering a cash takeover of the retailer, which has lost 95 per cent of its value since its founder Ray Kelvin quit in 2019 amid a “forced-hugging scandal”. He has denied all allegations of misconduct.
Shares in Ted Baker rose 16¾p, or 17.1 per cent, to 115½p, valuing the company at £233 million. Ted Baker has 560 shops and concessions and was founded by Kelvin, 66, in 1988 as a men’s shirt shop in Glasgow.
The company said it had not yet received any approach from Sycamore and that it was continuing to make good progress with its transformation to emerge from the pandemic as a “stronger and more financially sustainable business”.
Under UK takeover rules Sycamore, which is working with bankers at Numis, has until April 15 to make a firm takeover offer for the business.
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Rachel Osborne, Ted Baker chief executive, has been implementing a cost-cutting plan after a torrid period for the company. On top of Kelvin’s departure, there was the discovery of an accounting error including an overvaluation of the stock on its balance sheet, leading to a string of profit warnings.
Sycamore Partners has previously owned the British shoe brands Nine West and Kurt Geiger and owns Staples, the US stationery chain. It had been recently linked to the auction for Boots and last month approached Kohl’s, the US department store chain, with a $9 billion takeover offer.
The business is without a chairman to steer it through the takeover approach after the death of John Barton in December. Ted Baker also abruptly changed finance chiefs this month with the appointment of Marc Dench, formerly of Global Brands and Joules, to replace David Wolfe.
Ted Baker said that the board “is confident in the company’s independent prospects and would evaluate any offer for the company against the strong shareholder value creation that it believes can be delivered as a standalone company”.
Last week Ted Baker, which is part-way through its three-year turnaround plan, gave its first glimmers of hope that a recovery might be under way as sales had grown by 35 per cent in the 12 weeks to January 29. The brand has been badly hit by lockdowns and a slump in demand for formal clothes but it has managed to improve profit margins by reducing its ranges and focusing on full-price sales. Ted Baker has also started to sell a wider range of products to make its clothes more fitting for post-pandemic lives.
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Any takeover would probably need approval from Ted Baker’s biggest shareholder Toscafund, the hedge fund founded by Martin Hughes, which owns a 27 per cent stake.
The fund took an initial stake in December 2019 and doubled its position in June 2020 as part of a refinancing of Ted Baker, which slashed Kelvin’s stake to 12 per cent.
Analysts at Shore Capital said that the current share price did “not reflect the health of the Ted Baker brand equity”, adding: “The question is, at what premium would investors consider a potential bid, as the shares are down almost 30 per cent over the past year?”
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The analysts noted that the private equity interest in Ted Baker could mean that other UK brands such as Superdry and Joules could also attract takeover interest as their recent share price slumps meant they were also “now in deep value territory”.
The number of private equity takeovers of UK companies hit record levels last year, including Clayton, Dubilier & Rice’s £7.1 billion Morrisons deal. Buyout firms announced 781 transactions targeting British businesses last year, fuelled by the availability of cheap debt financing and low stock market valuations since a pandemic sell-off. Bankers had worried that volatility of markets since Russia’s invasion of Ukraine could stall deal-making appetites.
