Here's a tale of two giants of the high street. Both have lost their way, both have new management attempting to breathe life into tired stores and both are the subject of bids.
With a fair wind, the two companies should have a good chance of seeing off their predators. But their chief executives last week made serious blunders which have increased the once-outside chances of their suitors emerging victorious.
First, take WH Smith, where the chief executive, Kate Swann, initially appeared to have scared off the private equity firm Permira. A few years ago, WHS gave its pension fund trustees extra powers to protect the company's scheme. Martin Taylor, chairman of the trustees, deployed these in dramatic fashion by insisting that if Permira wanted to buy WHS, it first had to pump a "substantial" amount of money into its scheme to help reduce the £190m deficit. As poisoned pills go, this one appeared to be lethal.
Permira and WHS last week broke off talks. Then Ms Swann made what could be a critical error. To appease grumpy shareholders, she revealed her wish to sell or float the WHS-owned book publisher Hodder Headline. The business is probably worth up to £230m and the cash, said WHS, would be returned to shareholders. But not all of it.
WHS's pension trustees again reared their heads. Because a sale would reduce the group's earnings, the trustees argued that they were entitled to some of the cash. According to my spies in Swindon, they are asking for at least half of the sale proceeds.
This will play into the hands of Permira, which is hatching a second bid approach. With the pension fund deficit greatly reduced, there would be less pressure on Permira to pay into the scheme. Therefore, more of Permira's equity would find its way into shareholders' hands, increasing the bid's chance of success. And any news that investors were to receive less than half of the Hodder proceeds might drive down WHS's share price, reducing the amount of money Permira would have to shell out in the first place.
Over at Baker Street, Stuart Rose, Marks & Spencer's new chief executive, lost some of the ground gained in week four of the bid battle with billionaire retailer Philip Green. Last week we learnt that Mr Rose had bought 100,000 M&S shares before he was appointed chief executive. Nothing wrong with that. But the purchase, on 7 May, was made after he received a call from Mr Green inviting him to a meeting.
Mr Rose's camp dismiss any suggestions of insider dealing, saying that that he had no knowledge that Mr Green was eyeing M&S when he bought the shares. But the episode has cast a shadow over Mr Rose's defence. I understand that the Financial Services Authority will look at his purchase as part of its wider investigation into the movement of M&S shares in the run-up to Mr Green's announcement of his bid intentions. And news of Mr Rose's share dealing hasn't been particularly well received by some of M&S's institutional investors. One told me that the story was: "80 per cent bid bluff. The remaining 20 per cent, I'm not too sure about."
The seemingly fulsome support of shareholders that Mr Rose received when he dismissed Mr Green's two tentative offers also seems to be waning. Having spent last weekend mulling Mr Green's 370p-a-share offer, some investors have concluded that Mr Rose was too hasty.
In all of an hour and a half, Mr Rose and his board declared that the approach - which put an £8.38bn price tag on M&S - significantly undervalued the business. He also poo-pooed the idea of answering Mr Green's 14 questions, on which any offer was conditional.
As we report on the front page, shareholders believe Mr Rose may not have been acting in their best interests. The advantage still lies with Mr Rose - and with Ms Swann - but only just.
Jason Nissé is away.Reuse content