Marks & Spencer’s Boss Vows to Return the Share Price to £4

Business school graduates like to pretend their discipline is faintly scientific, rabbiting on about “metrics.” This is, to any statistician or physicist, complete nonsense, but unfortunately, because there are numbers in the ledger, B-schools have taught that quantification results in intellectual rigor. This allows garbage in to become garbage out. However, there is one man in business today who has set himself a genuinely measurable standard by which to judge his performance. Stuart Rose, the CEO of retailer Marks & Spencer’s has said if he doesn’t get the share price back up to £4, he will have failed.

There is more to the story than the target price. Marks and Sparks, as it is lovingly known, had a pretty lousy Christmas, with a sales warning coming out on Friday. Analysts had expected £675 million in sales, but they are likely to get only £600-£625 million. The stock is trading at £3.48 as of Friday, which gives the company a market capitalization of £5.7 billion.

Last year, though, the company saw off a takeover by Philip Green, a market mogul of some reputation, of £9.1 billion – or the magic £4 a share. Then, there was a share buy-back plan in October and a management shake-up in November. All of this is designed to get the chain moving again, or at least create a perception that rejecting Mr. Green’s bid, management was doing right by the shareholders.

Mr. Rose summed up the situation by explaining, “I have to get sales growth. Growth will deliver a higher multiple and hopefully a slap on the back for me.” It looks like the Christmas sales won’t result in a slap on the back but rather a slap in the face. Mr. Rose has promised to get the share price up by 52 pence, and that is his goal. Interestingly, he didn’t give a time frame for his goal. At the same time, the Takeover Panel has banned any bid for M&S for six months, a ban ending at the end of January. It would seem that there is a deadline for the target price after all.

In the end, this is a rather clever move by Mr. Rose. If the share price doesn’t get there by the end of January, another bid is certain to turn up. If it were in the £4 a share range, a second refusal would result in a shareholder mutiny. But if Mr. Rose does get it to that level, this target gives him the perfect defense against a hostile bid. And that is the measure of a businessman.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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