Ted Baker plc (LON:TED) is more exposed to a takeover by ousted founder Ray Kelvin after the market valuation of fashion retailer crumpled to a decade low, with some suggestions that other acquisitive retailers could be interested.
Kelvin, who still owns a 35% stake in the brand he founded, was forced out a year ago after allegations of “forced hugging” in the workplace.
On Tuesday the company issued a profit warning and said both its chief executive and executive chairman were leaving, a week after a £20-25mln accounting black hole was uncovered.
Trading in recent weeks, culminating with the Black Friday weekend, had been below expectations and the board now anticipate “difficult trading conditions will continue” as heavy discounting squeezes the wider retail sector.
This ripped a further another strip off the shares, down 14% on the day to 343.4p and valuing the group at around £154mln.
In early 2018, what was then a FTSE 250 company was valued at more than £1.3bn.
In July this year there was talk that Kelvin, who opened Ted Baker’s first store in Glasgow in 1987, was looking to make a bid for the company. At that point the company was being valued at around three times its current level.
“After yet another profit warning, it will cost a lot less to buy Ted Baker now and take it private,” said Nick Bubb, an independent retail sector analyst.
“The company is clearly in a real mess and Ray may well feel that it is past saving, unfortunately.”
However, with annual sales of more than £600mln, underlying pre-tax profits that topped £70mln two years ago, a cash-generative record and a London headquarters with a book value of around a third of the market cap, there are clear attractions.
While the company’s balance sheet at the end of July showed inventory of £209mln, the recent accounting mess suggests this is at least £20mln lower, while there is also net debt of £132mln and lease liabilities of £178mln to take account of.
It will be difficult for Kelvin to watching from the sidelines as the value of his large stake dwindles sharply, said Sophie Lund-Yates at Hargreaves Lansdown: “He is passionate about the brand, so it’s not unfeasible that he could go down the route of making an offer”.
Analysts at Panmure Gordon also believe the idea of a buyout “does stack up”, especially one involving Kelvin and his 35% stake.
“It is unlikely that Mr Kelvin would be prepared to let his 15.5mln shares go at what he would doubtless see as a knock-down price,” says Russ Mould at AJ Bell.
Yet Lund-Yates and the Panmure analysts both wonder whether he has the “appetite” for a return.
Reports in the summer suggested that Kelvin could be teaming up with a private equity company that would ask him to take on an arms-length advisory role.
But with the shares paring some of their initial losses on Tuesday, Bubb said the City seemed confident that somebody will step in to buy the brand.
“Mike Ashley, for example, must be looking at it,” said Bubb.