European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>After takeover interest started in March, quirky &amp; ailing Ted Baker has agreed on a 110p/share cash offer from Reebok-owner ABG, (a low) 18% premium, £211 mn implied equity value, £332 mn implied EV.</li>
<li>Consideration represents 5.6x EV/Fwd EBITDA, vs. 6.4x median of comparables. Although in the midst of a turnaround plan (with execution risk) and unhelpful macro environment, Ted Baker keeps brand equity.</li>
<li>Irrevocables represent 50.7%. Gross spread is 1.27%, with estimated annual return of 3.99% (assuming scheme is approved and settlement by mid-December). Long.</li>
</ul>


After takeover interest started in March, quirky &amp; ailing Ted Baker has agreed on a 110p/share cash offer from Reebok-owner ABG, (a low) 18% premium, £211 mn implied equity value, £332 mn implied EV.
Consideration represents 5.6x EV/Fwd EBITDA, vs. 6.4x median of comparables. Although in the midst of a turnaround plan (with execution risk) and unhelpful macro environment, Ted Baker keeps brand equity.
Irrevocables represent 50.7%. Gross spread is 1.27%, with estimated annual return of 3.99% (assuming scheme is approved and settlement by mid-December). Long.


Authentic Brands Group/Ted Baker:  Recommended Final Offer

There is no doubt that <a href="https://www.smartkarma.com/entities/ted-baker-plc" target="_blank" data-smartkarma-citation="entities:22179:1" rel="noopener">Ted Baker PLC (TED LN)</a> has gone through an annus horribilis. In addition to the allegations of "forced hugging" by its founder and 35% shareholder Ray Kelvin, there has been weakened investor confidence and three profit warnings that have sunk the shares so low, that current valuation offers support. 
On 10 December, Ted Baker announced the resignations of its chairman, David Bernstein, and  CEO, Lindsay Page, suspended the dividend and issued another profit warning. Shares tumbled 36% as a result to GBp 257.60 per share, 88% lower than the 52-week high of GBp 2,129.94 (on 9 January), and to levels unseen since June 2003.
Bargain hunters have appeared: the Financial times <a href="https://www.ft.com/content/3357d396-1f28-11ea-92da-f0c92e957a96" target="_blank" rel="noopener">published</a> on 15 December that Toscafund had amassed a stake of nearly 12% in Ted Baker. On 16 December an <a href="http://otp.investis.com/clients/uk/ted_baker/rns/regulatory-story.aspx?cid=898&amp;newsid=1352916" target="_blank" rel="noopener">RNS</a> updated that stake to 12.6%. There equally have been rumours since last summer that Ray Kelvin may be mulling a take private bid.
Ted Baker blames the less-than-ideal performance on competitors discounting, unseasonably warm weather, "evolving sector dynamics". While it is true that the company is suffering pressures on margins due to the weaker consumer spending and increased competition, the main problem with Ted Baker is that for its price level, it is not offering a truly distinctive product that commands premium pricing.
Other brands in the same price range such as Adolfo Dominguez or Purificación García offer an own style that is recognisable. Ted Baker is then sitting in the middle ground, neither Paul Smith or Zara, thus needing new designers to defend or justify its current price proposition.
Although I believe that an LBO sponsored by a private equity firm makes sense, I doubt that at this stage any of the big players would seek to get involved in such an operation with Ray Kelvin. This is due to the potential risk to reputation, at least until the forced hugs issue is resolved. A hedge fund would not face such constraints. A leveraged buyout, with a 78% premium to the current share price, i.e. a takeover price of GBp 636, would obtain a 27% cumulative IRR on year 8.
There is obviously execution risk (new management in place, and almost surely a turnaround plan which will require some time to implement), which is not deniable in the fashion industry: a new collection will take at least a year hence. On the plus side, Ted Baker is a recognisable well-liked brand.

There is no doubt that Ted Baker PLC (TED LN) has gone through an annus horribilis. In addition to the allegations of "forced hugging" by its founder and 35% shareholder Ray Kelvin, there has been weakened investor confidence and three profit warnings that have sunk the shares so low, that current valuation offers support. 
On 10 December, Ted Baker announced the resignations of its chairman, David Bernstein, and  CEO, Lindsay Page, suspended the dividend and issued another profit warning. Shares tumbled 36% as a result to GBp 257.60 per share, 88% lower than the 52-week high of GBp 2,129.94 (on 9 January), and to levels unseen since June 2003.
Bargain hunters have appeared: the Financial times published on 15 December that Toscafund had amassed a stake of nearly 12% in Ted Baker. On 16 December an RNS updated that stake to 12.6%. There equally have been rumours since last summer that Ray Kelvin may be mulling a take private bid.
Ted Baker blames the less-than-ideal performance on competitors discounting, unseasonably warm weather, "evolving sector dynamics". While it is true that the company is suffering pressures on margins due to the weaker consumer spending and increased competition, the main problem with Ted Baker is that for its price level, it is not offering a truly distinctive product that commands premium pricing.
Other brands in the same price range such as Adolfo Dominguez or Purificación García offer an own style that is recognisable. Ted Baker is then sitting in the middle ground, neither Paul Smith or Zara, thus needing new designers to defend or justify its current price proposition.
Although I believe that an LBO sponsored by a private equity firm makes sense, I doubt that at this stage any of the big players would seek to get involved in such an operation with Ray Kelvin. This is due to the potential risk to reputation, at least until the forced hugs issue is resolved. A hedge fund would not face such constraints. A leveraged buyout, with a 78% premium to the current share price, i.e. a takeover price of GBp 636, would obtain a 27% cumulative IRR on year 8.
There is obviously execution risk (new management in place, and almost surely a turnaround plan which will require some time to implement), which is not deniable in the fashion industry: a new collection will take at least a year hence. On the plus side, Ted Baker is a recognisable well-liked brand.

United Kingdom

Ted Baker PLC is a British designer brand. The Company, through its multi-channel distribution strategy, distributes its wide range of collections through its own and licensed retail outlets, department stores and selected independents in Europe, the US, the Middle East, Asia and Australasia.

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Ted Baker PLC (TED LN)

Authentic Brands Group/Ted Baker: Recommended Final Offer

After takeover interest started in March, quirky & ailing Ted Baker has agreed on a 110p/share cash offer from Reebok-owner ABG, (just an) 18%...

Jesus Rodriguez Aguilar

Ted Baker (TED LN) Bargain Basement

There is no doubt that Ted Baker PLC (TED LN) has gone through an annus horribilis. In addition to the allegations of "forced hugging" by its...

Jesus Rodriguez Aguilar

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