Private Investor: A nightmare on Baker Street - the M&S saga continues

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The Independent Online

Well, £4 is good enough for me. I refer, as you might guess, to Philip Green's bid for Marks & Spencer and the price he is prepared to pay to get his hands on each ordinary share in the company. In fact, I am more tempted by the alternative of 335p cash plus some shares in what will become the new M&S holding company, the so-called "equity stub". At least that way we long-suffering M&S shareholders have the prospect of sharing a little in the upside story, if that ever materialises. You have to be impressed by Mr Green's apparent willingness to give up BHS, the business that made him the man he is today, so that he can win M&S.

I realise that I write a good deal about M&S, but it's hard not to at the moment. It is an incredibly entertaining story, and is "a good thing" if nothing else because it might just capture the imagination of the public and teach a little about finance and the City to those who, understandably enough, normally find such matters too dull for words.

For me, though, M&S is a little special because it was the first share I invested in directly, more than a decade ago. Then, when I bought at 333p (a memorable price), M&S seemed to fit all the right criteria for such an investment.

I had bought for the long term; it was a blue chip; it had good growth prospects as we emerged from the early 1990s downturn; it was apparently well managed, indeed it was a by-word for best managerial practice in the retailing and wider business. Plus it had millions of happy satisfied loyal customers (like me) who valued the quality of its merchandise.

After a couple of years the shares had nearly doubled, as I recall, and then the run of bad news began, and hasn't really stopped now.

In the short run I doubt that Mr Green's approach will have raised morale among the staff and it has distracted the current management team from the important task of turning the underlying business around. The long-term position might well be better than many people give Mr Green credit for. His offer may fail - and the fact the shares haven't responded with that much alacrity to his advances suggests that is precisely what will happen - especially if Mr Green doesn't get extremely hostile. However, he has done shareholders the enormous favour of focusing attention on the boardroom. The nightmare on Baker Street continues.

The long-term underperformance by M&S shares in relation to the wider market has been remarkable, and all the more depressing when the wider market remains so firmly in the doldrums.

We are obviously at a bit of a turning point in the economy, as the trend to higher rates continues and the talk about the end of the housing market bubble turns increasingly gloomy. Historically the stock market has been known to prosper in downturns, but that may be because those slumps - and I'm thinking now about the early 1980s - were associated with economic restructuring and thus the idea of better profitability long term.

The good news I suppose is that for once the old politician's mantra that the "fundamental economy is sound" rings true about the UK in 2004. The bad news is that no government, not even one with Gordon Brown as a member, has succeeded in abolishing the trade cycle and we are severely overdue for a more marked slowdown than we have so far experienced. For a while the threat seemed to come from the price of oil, now it is higher rates and the toppy housing market, and who knows what nasty surprises will shortly fly out of China.

Things can only get worse, and I fear that includes the stock market.


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