Private Investor: Time to cash in on M&S before it loses the plot yet again
Saturday 25 September 2004
Strange that no sooner had
Marks & Spencer shareholders rejected the offer of 400p per share from Philip Green when he was hoping to take over the company, than we should be offered somewhere between 332p and 380p a share by the M&S management team.
Strange that no sooner had Marks & Spencer shareholders rejected the offer of 400p per share from Philip Green when he was hoping to take over the company, than we should be offered somewhere between 332p and 380p a share by the M&S management team. After all, it was they who kept telling us shareholders that Mr Green's offer undervalued the group.
So what are we to make of it? Well, for a start we don't know for sure how much we will get for our shares, so we have to indicate what we'll expect within that 332p to 380p range. The offer closes on 22 October when a "strike price" will be calculated. Shares offered at or below it will be paid in full. Offers above it will be rejected. It's a bit like a public offering but in reverse - which, of course, it is.
I'm inclined to go for it, at the upper end of the range, even after all these years of sticking with M&S. I think it has lost the plot too many times now. My partner mentioned to me the other day how much better the range of clothes sold by Asda had become recently, and I would be very worried if I were an M&S manager about the new threat from these low-priced alternatives. M&S is squeezed at one end by the fashionable boutiques and at the other by the supermarkets. I don't know what it can do to resist the pressure. Tesco or Asda's parent, Wal-Mart, looks a better bet than M&S.
Unless, perhaps, there is a great big crash. What are we to make of the IMF's gloomy prospectus for the world economy? The IMF, as you might expect, expresses itself in its official pronouncements with magnificent restraint. Commenting on the global surge in property prices, it couches its warnings in the following terms: "In cases where house prices may have exceeded fundamentals - which may include Australia, Ireland, Spain and the UK - there is a danger that higher interest rates could trigger a much larger downward adjustment in house prices." A fall in British house prices, they say, cannot be ruled out.
Well, that's about as near to a red-top headline of "Crash! Bang! Wallop!" as such an august body will ever get. As it is, there is a surprising amount of evidence showing that consumer spending has been affected by the Bank of England's modest but determined upwards nudge to rates.
There is no good news in this. If there is a decline in property prices, it will reduce spending and will do the profits of those companies doing business in this country no good. It will do their share prices no good. It will do investors in equities no good. The public have little confidence in financial investment - for understandable reasons - and they have obviously chosen in the past few years to put their money into bricks and mortar. But if the property market becomes less alluring that doesn't necessarily mean they will turn to the stock market instead.
When there is a general tendency to very low inflation and higher real interest rates you can't argue with the proposition that "cash is king". Pick the right mini cash ISA and you will see a tax-free real return of 5 per cent or so. Not earth-shattering compared with how much your house or flat has risen recently, but better than they may perform in the medium term.
Yet the unpopularity of the stock market may provide some opportunities for the intrepid. Having said that, they are seemingly rare. I wrote last week about the attractions of Saga as it prepares for a possible public offering, but I've yet to hear anything as a result of my registering for a mini prospectus.
In the meantime I would like to add to my holdings in Shell, which is comfortably above 400p now and at around the average I have bought the shares over the past few years. The company has had a rotten recent history, but the new management team now seems determined to restore investors' faith in Shell by going "back to basics".
A slimmed-down, reformed Shell is an attractive proposition. And it gives you a yield of 4 per cent, but with the prospect of a little bit of capital growth (long-term) on top.
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