Shares in Marks & Spencer jumped 8.3pc after speculation that private equity firm CVC had approached the retailer's management team about a buy–out.
The high street retailer has been the focus of increasing market speculation in recent weeks after a number of banks began exploring options for a possible leveraged buy–out.
Despite a denial from CVC that it was pursuing M&S, shares in the retailer still ended the day up 4.3pc, closing at 371.7p.
In May, M&S reported its first drop in profits in three years and its weakest set of quarterly figures since spring of 2005 when it was left reeling after a takeover bid by Sir Philip Green. The recent loss of Kate Bostock, who ran M&S's clothing division, and the deterioration of the general merchandising has sparked interest that the company could be ripe for privatisation.
But the £5.7bn market value of M&S, along with its debt, would make it very difficult for private equity firms to pursue a deal. Even if several firms were to club together, the amount of debt they would need would be in the billions of pounds at a time when banks are loath to offer more than £1bn for a single asset. With the UK retail sector under pressure, it would be highly unlikely that banks, or the buy–out firms they could lend to, would find their "comfort zone" with an M&S deal.
In the two years since Marc Bolland took over from Sir Stuart Rose, the 128–year–old company has tried various initiatives to halt slipping sales. However, Mr Bolland appears to have struggled to arrest the retailer's decline of market share in the crucial womenswear sector.
Analysts say that the clothes ranges have failed to capture the imagination of consumers with small disposable income.
CVC, which owns a majority stake in Formula One and part of AA–to–Saga group Acromas, is one of the few private equity firms that has the available funds to make a major acquisition, as well as a track record in the retail sector. It is currently working through its latest €10bn (£7.9bn) fund. In 2007, it was forced to abandon its plans to take Sainsbury's private after its offer was rejected by the Sainsbury family and the pension fund trustees.
CVC's bidding partner, KKR, went on to buy Alliance Boots, which became Europe's most expensive leveraged buy–out deal. In July banks looked at the possibility of raising US dollar debt to help finance a takeover approach for M&S, backed by a handful of private equity firms.
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