Takeover speculation surrounding High Street retailer Marks & Spencer (M&S) pushed the stock sharply higher on Monday, but an outright denial by rumoured Qatari bidders failed to dampen the share price in afternoon trade.
According to The Sunday Times, the Qatar Investment Authority, which already owns high-end department store Harrods and a 26% stake in Sainsbury, was said to be assembling a consortium of private-equity investors and had spoken to banks about financing a potential offer.
Rumours over a buyout lifted the retailer's stock last week, with the share price finishing nearly 3.0% higher at 372.5p by Friday's close, leaving its market capitalisation just shy of £6.0bn. The Qatari offer was thought to be for a price of 500p a share, valuing the company at £8.1bn. The stock surged as much as 9.0% in early trading on Monday.
However, Reuters reported in the afternoon that a source close to the sovereign wealth fund had quashed the rumours, though no official statement was released. Despite the denial, M&S's share price remained elevated, up 27.9p (+7.49%) at 400.4p by 15:20.
A series of disappointing trading updates are thought to have left the company vulnerable to a takeover bid over the last few months. In the third quarter in particular, M&S missed sales forecasts for the key Christmas period with like-for-like sales in the UK dropping by 1.8%.
As such, M&S had failed to join in with the wider stock-market rally, dropping 3.2% (as of last week) since the start of 2013, underperforming the benchmark FTSE 100 which has jumped over 10%.
However, with no firm offer materialising for the company - as has been the case many times in the past - market chatter has suggested that the stock could have been subject to so-called "share ramping", a way of deliberately spreading rumours on the market to illegally boost share prices.
Shares hovering around resistance levels
From a technical point of view, the 400p resistance level for the stock has been a tough one to breach, according to Rik Thakrar, the Risk Manager and Senior Dealer at Spread Co, with the share price bouncing lower from these levels in early November and again in mid-December.
He said: "If the stock price makes a further failed attempt to breach the 400p resistance then a technical charting triple-top feature may well result in one way movement to the downside for the equity. Either way, Investors with Qatar have expressed unambiguous interest in M&S and this has provided continual buying pressure, if this continues then an announcement under the Takeover Panel rules may give investors the transparency they desire."
Thakrar said that many of Spread Co's clients took long positions in early trading on Monday, running close stop losses and selling at 400p, while the same amount short sold the stock as it hit 400p, "presumably on the basis that once the story runs out of puff, M&S shares
will return from whence they came".
"Plenty of upside"
In contrast, Ronnie Chopra, the Head of Strategy at Tradenext, said that there is very little bid premium priced into the stock at current levels "plenty of upside" to 400p.
"The retailer has been the target of a bid in the past at 400p per share from Philip Green at the beginning of the decade but with the shares having gone nowhere in the last few years, a great deal of value is still to be unlocked from the substantial freehold property portfolio and the huge cashflow generated," Chopra said.
"With borrowing costs very low, now is a great time to pounce on this high street bellwether while shares languish around 400p."