M&S: Rule breach and PR fiasco

IT started with a barely noticed Stock Exchange announcement. But it ended in a spectacular public relations disaster for Marks & Spencer.

On Thursday, June 17, M&S slipped out the news that new chief executive Stuart Rose owned 135,000 shares in the store group under the name of Giltspur Nominees.

For Rose, brought in by M&S after entrepreneur Philip Green threatened a takeover, this was small beer, he had made tens of millions from takeovers of Argos, Booker and Arcadia.

And there the matter might have ended. In the next day's papers, only the Daily Mail mentioned Rose's stake.

It was not surprising that attention was elsewhere. Only 24 hours earlier, M&S rejected a higher outline bid from Green in which he had flagged an offer of 'not less than 370p' a share for M&S, valuing the company at £8.4bn. This new bid and M&S's swift rejection was the focus of frenzied analysis and interpretation.

But why announce the size of Rose's investment 17 days after his appointment? Financial Mail contacted Tulchan, the financial PR company that stands to earn up to £1m if M&S sees off Green. We asked when Rose had bought his shares. Tulchan stonewalled.

In two conversations with Financial Mail journalists, Tulchan insisted that Rose had not dealt since a meeting on May 12 at which Green revealed he was lining up a bid for M&S, which made Rose an 'insider', barring him from dealing in M&S.

Tulchan missed the point. No one suggested Rose had bought after the meeting. But when did he buy shares? A day before the meeting with Green? A month before? A year before?

Tulchan chief Andrew Grant would only admit that since the beginning of the year and May 12, Rose's holding had varied between 'large' and 'small'. M&S did not have to give details of Rose's dealings, Grant said, so it was not going to. That was that. A fund manager who holds shares in M&S put it well: 'It's intriguing. Why is M&S reluctant to give details?'

In fact, Grant was wrong. M&S was obliged to say when Rose had picked up his shares. As Financial Mail reports today, the company's failure to do so broke the City's regulations governing listed companies.

The UK Listing Authority's rules are the Bible for City practitioners.

Rule 16.13 is explicit. When disclosing a director's shareholding, a company must give 'the date on which the transaction giving rise to the interest was effected; and the price, amount, and class of securities concerned'.

But M&S failed to say when Rose had bought shares and it didn't give the price. Indeed, it still hasn't given the required information through official Stock Exchange channels.

Last Sunday, Financial Mail reported M&S's stubborn refusal to disclose the timing of Rose's dealings. But late that afternoon, having fielded calls from a number of daily papers, Grant caved in and handed over the crucial information that he had refused to give out 48 hours earlier.

Monday's Financial Times and Daily Telegraph reported that Rose had bought 100,000 of his M&S shares on May 7, just five days before the meeting at which Green revealed his bid plans.

The five-day gap was intriguing.

Financial Mail had already reported one party at the centre of the saga as saying that the Green/Rose meeting had been arranged over the phone 'about four or five days beforehand'. If the gap was five days, the call was made on May 7, the very day Rose had spent about £277,000 to quadruple his M&S holding. And, if so, had Rose dealt before or after that conversation?

On Monday, Financial Mail contacted Green and asked when he had phoned Rose. No one was suggesting that a bid for M&S had been discussed during Green's conversation with Rose to fix their May 12 meeting; indeed, both sides have consistently denied it. But M&S's refusal to be open about Rose's dealings made it appear the company had something to hide.

Katie O'Brien, Green's personal assistant at Bhs headquarters in central London, traced details of the call to Rose. Green phoned at 1.47pm on May 7. The conversation lasted three minutes, 20 seconds.

These details were given to Green's PR adviser Finsbury, headed by former Financial Times reporter Roland Rudd.

Green's merchant bank, Goldman Sachs, then combed records of share deals for the day of the phone call. Those showed only two parcels of 100,000 shares had changed hands that day, the first at 2.16pm and the second at 3.13pm.

One of these had to be the Rose purchase. He had bought them within 90 minutes at most of the call from Green.

The Green camp was jubilant. For the first time since the billionaire retailer started circling M&S, Rose was on the defensive.

Late on Monday, Finsbury spoke to at least two newspapers. It gave details of the striking juxtaposition of the May 7 phone call and Rose's share purchase. Finsbury claims it received calls from other papers that day, asking about phone records and was merely responding to those requests. This is untrue. At least one journalist was offered the information without seeking it.

Most papers hesitated about runningthe story. But Tuesday's Daily Mail carried full details of the phone call and Rose's dealings.

At Tulchan, Grant was under pressure. He accused Green and his allies of mounting a smear campaign, not realising it was his own obstinacy the previous Friday that had triggered the chain of events leading to a stream of uncomfortable headlines for M&S and Rose.

Grant tried to deflect attention from the issue by pointing reporters to results of 'section 212' inquiries made during the previous two weeks to discover if any of Green's allies had bought M&S shares.

Section 212 notices are routinely used by companies under attack, to find out who their shareholders are and to uncover evidence of suspicious share buying before a bid.

The result of one inquiry, reported in last Sunday's Financial Mail, was particularly striking. It showed that Green's friends, the brothers David and Simon Reuben, had made a £427,000 profit on M&S share options bought in April.

There was a wonderful irony in Tulchan using the Reubens' activities to try to shift the media spotlight away from its client. The idea of serving the Reubens with a 212 notice had come from Financial Mail at a meeting with M&S chairman Paul Myners on June 4.

Rose says he did nothing wrong. He says he had wanted to buy M&S shares for several days before as they were near their low point for more than a year. He bought after his stockbroker Brewin Dolphin called him. It was coincidence that the deal was executed on the day that Green called.

Crucially, Rose says that Green's May 7 phone call did not indicate that he wanted to talk about a possible M&S bid. But over the previous two weeks there had been persistent Press speculation that Green was preparing to pounce. Perhaps Rose was just too busy to read the newspapers.