European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

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.

Ted Baker PLC

Ted Baker (TED LN) Bargain Basement