Outlook: Only the brave would don St Michael's halo

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The Independent Online
IS IT FINALLY time to buy Marks & Spencer? Hope springs eternal when it comes to the fabled St Michael, and Britain's new model army of private investors reckons it is. M&S is still such a powerful brand, the thinking goes, and its shares have so plainly been oversold, that eventually it must recover. Either that, or someone will bid for it.

It scarcely needs repeating that this was being said a year ago, six months ago, even three months ago, and every time the price has gone lower still. Indeed, it has been said all the way from the peak two years ago, when the shares were still trading at more than 650p.

But, with the price up more than 20 per cent over the last two days, on gigantic volume, there is now plainly a real head of steam behind the belief that the company has finally hit bottom. Not even M&S's bland assertion yesterday that it knew of no reason for the sudden share price movement dented optimism much; the shares largely hung on to their gains.

Now, it is often the case that the target company is the last to know of the predator waiting in the bushes, ready to strike, and it is this, rather than renewed confidence in trading prospects, that has really captured the market's imagination.

As our news story opposite reports, there are three obvious candidates - Kingfisher, jilted at the altar by Asda in favour of Wal-Mart; Asda's former boss, Archie Norman; and Tesco. To this slate ought to be added a fourth possibility - a financial purchaser - such is the perceived scope for gearing up M&S's balance sheet.

In these markets anything is possible, and a hostile bid certainly should not be discounted altogether. But there are any number of reasons for thinking that this is yet another false dawn for M&S shares. Take the market favourites to bid. Kingfisher would certainly love to do it, but has it got the management? It was partly to address this problem that it bid for Asda, only to be outgunned by Wal-Mart, and it is not at all clear what it would bring to the party at M&S.

Tesco already has its work cut out defending its own brand, not to mention its overseas expansion programme. Reviving M&S might be the management challenge too far - besides which, it would undoubtedly face a competition problem given M&S's 3 per cent share of the national groceries market.

As for Archie and Knutsford, well maybe, but still it seems a trifle implausible. M&S and its shareholders are desperate, and if Mr Norman wanted the job they would be only too happy to give him it. But how much value would they be prepared to cede to him? Knutsford is valued by the stock market at pounds 655m, and outstanding businessmen though Mr Norman is, most shareholders would baulk at that.

A cash bid from a financial buyer might be a different matter. Unfortunately, things don't seem to be getting any better at M&S. Trading remains dire. In these circumstances, a cash bid becomes extremely high risk. The company seems to have great asset backing, but how much are these stores really worth if e-commerce is going to drain them of their custom?

Not wishing to be a wet blanket, but whoever takes on M&S still has a mountain to climb in turning round its fortunes. All the same, you never know. Optimism is the name of the game these days, and someone may be brave enough.