M&S: Backlash over bid rejection

MARKS & Spencer has three days to come up with a blockbuster strategy or face the discomfort of being forced into bid talks with Philip Green.

The retail giant boldly snubbed Green's £9.1bn proposal, but left the door ajar in case shareholders demand a U-turn.

Marks said the 400p a sahre approach 'continues to undervalue the group and its prospects significantly'.

Shareholders were mildly disgruntled at the dismissive stance. One said: 'They will have to come up with some pretty strong arguments as to why we should not look at 400p.'

Investors want detailed answers from chief executive Stuart Rose when he sets out his plans on Monday.

Marks said: 'Shareholders will see that M&S is worth more to them than Philip Green is able to pay.'

Green is trying to garner support. He hopes to have backing from more than 20% of shareholders by today.

He is furious with M&S chairman Paul Myners for not taking him more seriously.

Green said: 'Does he [Myners] really think he's got any credibility and that he can crawl back to me on Monday if people don't like what Rose has said?'

Some think Green, who has lined up more than £10bn of funding, will try to buy Sainsbury if he cannot get Marks.

The pressure is on Rose. JP Morgan analyst Philip Mitchell reckons he needs to boost earningsby 24% in 2005/06 to justify a 400p share price. This means he must find £212m of savings. Mitchell reckons there is scope for a massive increase in clothing margins if Marks improves its overseas sourcing.

Earnings per share could be boosted by a share buyback. Marks has low borrowings and could afford to buy up to £2bn of shares.

Rose could finance this by increasing bank debt or by raising some cash against the property portfolio. The property is valued at £2.2bn in the books, but it is thought to be worth £3bn.

Costs will have to be cut. Analysts were forecasting £400m of capital expenditure this year. This could be cut by £150m simply by scrapping expansion plans for Lifestore and Simply Food shops.

Meanwhile, the Financial Services Authority cleared Rose of any wrongdoing over his dealing in M&S shares. It said: 'There are no ongoing inquiries in respect of Stuart Rose.' It also cleared Rose's business associate Michael Spencer, of broker ICAP, who took a punt on the share price.

Rose bought 100,000 shares on the same day he received a phone call from Green, prompting speculation that he knew of the bid plot.

M&S said: 'The company has always maintained Stuart did nothing wrong. There has been a sustained campaign to undermine his reputation.'

Corporate governance body Pirc is urging investors to vote against the M&S remuneration report at next Wednesday's annual meeting. It says the pay schemes could deliver 'excessive rewards'. It is annoyed that ousted directors Luc Vandevelde and Roger Holmes are allowed to exercise share options without meeting performance targets.