Investors pay the price

SHAREHOLDERS in Marks & Spencer must decide this week whether to agree to the company's plans to buy up nearly 30% of their shares. If the answer is yes, they will tell chief executive Stuart Rose at what price they are prepared to sell out.

This £2.3bn bung to investors - supposedly worth 100p a share - was billed as a reward for helping to show the door to Philip Green and his putative 400p a share takeover assault this year.

M&S bosses say the proposed tender offer for shares is a mechanism, unlike special dividends or share buybacks, that would benefit long-term holders - though when all shareholders are supposed to be equal, it is strange that a company should seek to benefit one group over another.

A tender offer allows investors to put all or part of their shares up for sale to the company at a price (within a specified range), to avoid dealing charges and, hopefully, to see share prices rise because the number of shares in issue will reduce following the buy-up.

Alternative ways of returning money to shareholders have their downside. Investors must pay tax if a company decides to pay one-off special dividends and the number of shares in issue remains the same. So all things being equal, earnings per share and the longer-term share price will not be driven higher.

A buyback means a company has to pay the market price to mop up shares, something M&S might avoid if the strike price - set by weighing up the number of shares offered across various levels in the price range - falls below that in the market.

While shares should rise after a buyback, it is the big institutions and hedge funds that tend to win by flogging their holdings, while small investors are left on the sidelines.

In a tender offer, individuals can say how many shares they want to sell and, within a band, at what price. In this case the range is 332p to 380p, well shy of Green's price, which Rose and his board said undervalued M&S so much that they were not prepared to let him look at the books in the hope of extracting more.

But small investors are much less savvy when it comes to nominating an exit price. They are also being asked to vote in favour of the tender offer before having much idea of how much the company will have to pay for shares.

It looks a dead certainty that this will play into the hands of the hedge funds, which are now thought to hold about one third of the shares and have been looking for the exit since Green walked away.

Just to stack the odds even more against individual investors, it is widely rumoured that hedge fund managers have been talking behind closed doors in an attempt to swing the buyback in their favour.

He would not say as much, but this is clearly what Rose hopes to achieve. With these aggressive funds off his back, he hopes for a quieter time from small shareholders, most of whom are his customers, while he tries to turn things round.

Green will announce this week a further rise in sales at his Arcadia group, bought from one Stuart Rose, together with a big pay down of debt and a bonus of more than £20m for staff. He may be feeling mightily relieved that M&S, whose recent trading news has been dire, escaped his clutches.

M&S shareholders might like to know that Rose, after collecting a windfall of £26m after selling Arcadia (formerly Burton) to Green, applied for early retirement there and has since been collecting a pension of £69,000 a year.

Having lent their support to repel Green, and now to be offered probably 50p a share less, how many small investors will be wishing Rose well over his good fortune?

Caught in the crossfire

IMAGINE the scene last Wednesday. Terry Smith, the pugnacious chief executive of stockbroker Collins Stewart, and James Middleweek, the analyst he had sacked, stood and shook hands. The unfair dismissal case brought by Middleweek against his former boss - and revealed by Financial Mail - became one of the most vicious City rows ever.

The year-long battle drew in the police after Collins Stewart claimed Middleweek was blackmailing it. The Financial Services Authority investigated allegations of insider dealing against both Middleweek and Collins Stewart.

Not a single allegation against either side has been upheld. Now the broker has dropped legal action against Middleweek and he has withdrawn his £3m claim.

But while the war has ended, there is some collateral damage. First, Collins Stewart says it is determined to pursue its libel case against the Financial Times.

And, in a final irony, Collins Stewart and Middleweek find themselves with a common enemy - solicitor Dale Langley. He acted for Middleweek at the start of the case and now faces legal action from Collins Stewart for defamation while Middleweek plans to sue him for negligence.

You wouldn't want to be in Langley's shoes.