Ted Baker shares slump after bidder pulls out of acquisition

After a prospective buyer dropped out at the eleventh hour last week, Ted Baker’s prospects of finding a replacement are dwindling. While shoppers are returning to buying formalwear, analysts believe that the company should consider a pivot towards digital sales and reduce its reliance on brick-and-mortar stores.

In the week ending 10 June, the Ted Baker [TED] share price lost up to a fifth of its market value after its preferred buyer pulled out of its acquisition of the company. It was believed that Authentic Brands, which owns retailers such as Reebok, Juicy Couture and Forever 21, was behind the bid, reported the Financial Times.

It’s a crushing blow for the upmarket high-street brand, which specialises in occasionwear. In the hours following the announcement, the Ted Baker share price dropped by around 20%. It closed at 111.60p on 7 June, down 18.4% from 136.80p on 6 June, the day the announcement was made. Since then, the stock has plummeted by another 30.6% to close at 95.9p on 14 June. Year-to-date, it is down 7.9% from 103.1p at the start of the year.

The London-based fashion retailer, which has received other non-binding offers in recent months, said that it would assess any other proposals on the table. However, there is no guarantee that another bid will come along.

Tricky times for Ted Baker

Ted Baker, which has around 400 outlets across the world, has struggled in recent years. Its share price has crashed by an eyewatering 95.9% since reaching 2,366.93p in early 2018. At its peak, the company was worth around £1.5bn.

In 2019, its founder Ray Kelvin departed amid claims of inappropriate behaviour towards female employees, though he remains a shareholder. During the pandemic, the company was forced to cut hundreds of jobs, and raised £105m through a stock issue and subscriptions to help it stay afloat.

However, it’s not entirely bad news for Ted Baker. In fiscal 2022, the company narrowed its year-over-year losses from £107.7m to £44.1m, with group sales increasing by 20.5% to £428.2m for the year ending 29 January.

Analysts recommend a shift to online retail 

Ted Baker suffered when weddings and other occasions were delayed or cancelled during lockdowns. The model for fashion retail has also changed, with faster-paced ‘e-tailers’ like Boohoo [BOO] and Asos [ASC.L] popular with younger generations. With a price point higher than many of its fashion peers, further challenges for Ted Baker lie ahead as consumers tighten their belts.

Sophie Lund-Yates, an analyst at Hargreaves Lansdown, says the firm must pivot towards digital and reduce its reliance on city centre locations. “The longer-term plan is to reduce the group’s physical footprint, open new stores in key developing markets like Greater China and the Middle East and focus on a hybrid online/in store approach to selling,” she wrote in a report on 7 June.

If Ted Baker doesn’t find another buyer, its stock will likely suffer. But the company isn’t on its last legs yet, believes Lund-Yates. “Gargantuan cost-saving efforts, the sale and lease back of its head office and the issuing of new shares, means the balance sheet is in much better condition than before. Ted’s also flush with £3m of net cash,” she said.

Could the company still be an acquisition target?

Despite Authentic’s last-minute withdrawal, Sarah Riding, a retail and supply chain partner at law firm Gowling WLG, believed Ted Baker was still “an attractive and viable retail acquisition option for many other high-profile buyers”, reported City AM. 

But she added challenges lay ahead for any new owner in terms of maximising Ted Baker’s potential “through new product lines, online revenue streams and even overseas market penetration and expansion in a revitalised post-pandemic setting”. 

In April, Ted Baker saw its share price jump by 14% when it launched a formal sales process. It received interest from private equity firm Sycamore, which at the time valued the company at around £254m, submitting three takeover bids in all. However, Sycamore is out of the race, declaring in May it was no longer pursuing a purchase.

While the fashion chain reported it had received “a number of other non-binding proposals”, there are currently no firm reports of alternative purchasers.