Rose plan heads ways retailer could see off billionaire's offer

'Final' offer of 400p a share puts board on defensive * Biggest shareholder still backing management
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The Independent Online

Analysts are set to make significant upgrades to their M&S profit forecasts on Monday after Stuart Rose, the chief executive, announces a raft of initiatives to boost the retailer's prospects.

Analysts are set to make significant upgrades to their M&S profit forecasts on Monday after Stuart Rose, the chief executive, announces a raft of initiatives to boost the retailer's prospects.

Mr Rose is planning cost cuts and operational improvements that will boost margins and should lead to pre-tax profit forecasts for this year being increased by about £25m and next year by about £50m.

Mr Rose's presentation on Monday, setting out his strategic vision for the company, will be a key plank in M&S's bid defence against Philip Green's 400p-a-share proposal. It is one of a number of obstacles that still stand in the way of Mr Green finally succeeding in his efforts to buy the company.

It is expected that Mr Rose will reveal plans to improve gross margins, cut costs and create a more efficient balance sheet. This is expected to include increasing the company's borrowing to fund a share buyback in the region of £500m.

Strategically, he is expected to announce a renewed focus on the core M&S customer in clothing and food, and axe initiatives such as Per Una Due, a clothing range for teenagers, and the home furnishing business Lifestore.

He has already announced that 500 food lines will go, and in clothing he is expected to focus on improving M&S's offering and presentation to its core older target market.

Its property portfolio is also expected to have been re-valued in time for the announcement, at about £3bn, which will leave Mr Rose with scope to hand cash back to shareholders.

John Baillie, a retail analyst at SG Equity Research, said: "All the pressure is on Stuart Rose to deliver but it is a fat business and there is lots of scope to address the cost base." Mr Baillie reckons that M&S can deliver sufficient good news on Monday to prompt a 10 to 15 per cent upgrade in consensus earnings per share forecasts for March 2006 from the current 26p to 27p. Apart from Mr Rose coming out fighting on Monday, Mr Green could face an investigation by the Office of Fair Trading, which may be referred to the Competition Commission. He dismissed the idea yesterday but analysts are not so certain.

Nick Bubb, at Evolution Beeson Gregory, said: "It's been a fantastic effort to get this far but I still think he's not going to win. He would have a big chunk of the clothing market. We haven't begun to debate the conflict of interest issues of having somebody owning Bhs, M&S and Arcadia."

Thirdly, there could be a rival offer. At the beginning of the bidding process there were rumours of a bid from Wal-Mart, the giant US retailer. A bid for M&S was seen as a way for Wal-Mart to strengthen its position in the UK - it already owns Asda. The rumours have cooled. A bid from a private equity group seems unlikely given the size of the bid and the complexity of putting together a financial consortium.

Mr Green has also been unable to conduct due diligence for his bid. Pension fund trustees have refused to meet him to explain its finances. He will have to rely on the M&S board agreeing to let him see the company's detailed accounts to assess the liabilities that the M&S pension fund represents. Mr Green still faces substantial challenges.

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