Ted Baker Bid Fails – How Much Do We Believe The Explanation?

Ted Baker (LON: TED) put itself up for sale recently in the face of a number of possibly attractive offers. One such offer was selected to go through the due diligence process and that offer has now been withdrawn. Ted Baker shares are down 21% at pixel time as a result of that withdrawal. The big question becomes how much do we believe the explanation for the withdrawal – the subsidiary one is what does this do to the value of any future or possible takeover?

Ted Baker, as we've noted before, has rather lost its way as a retailer. It's not just lockdown, nor the associated logistics snarls upon reopening. The brand simply isn't worth what it perhaps once was. There are those out there who think they can rejuvenate the brand and they're the people looking to buy it out.

Obviously and clearly though these are rather bottom feeders. Looking to gain an asset on the cheap even. Which is fine, that's how this capitalism stuff works. As we've also noted Ted Baker shares are dependent upon what is that bid price going to be? As an ongoing business, without changes in plan and possibly management, they're worth perhaps what they were before the news of bid approaches. The fall back today is the loss of that implied takeover premium we might think.

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So, given that the Ted Baker valuation depends upon the bid, what about this bid that has ceased to be? The announcement tells us that: “The Board was informed by the preferred counterparty last night that it did not intend to proceed with an offer for the Company. The counterparty indicated that its reason for not proceeding was not linked to its due diligence review of the Company.” An immediate reaction to that statement might well be “Yeah, Right”.

Further thought might be appropriate though, One explanation is that the bidder simply doesn't want to extend itself into retail right now. Or thinks there's a significant recession coming. Could be – but that's not exactly a positive for the Ted Baker valuation now, is it? Or it could be the financiers, the bankers (no doubt debt would have been involved here) who are starting to raise the cost of funds so that a takeover of Ted Baker doesn't work on a cashflow basis. That could be true – and also isn;t positive for that takeover premium.

Finally, there's the point that obviously Ted Baker chose the most attractive of the potential offers to push through to the due diligence stage. If that offer has now disappeared, for whatever reason, there are several offers still out there, in the ether. But they are all, by definition, less attractive offers other wise they wouldn't still be waiting, would they?

It is possible that one of the other offers will now proceed. But the takeout price for Ted Baker shares has clearly suffered a blow, whatever the reason for the preferred bidder dropping out. Expectations on any premium should perhaps be lowered.