Ted Baker shares bounce on buyout buzz

Ted Baker’s shares have soared thanks to reports that founder Ray Kelvin is set to support a management buyout.

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Shares in Ted Baker (LSE: TED) have soared thanks to reports that founder Ray Kelvin is set to "throw his significant shareholding behind a buyout", says Neil Craven in The Mail on Sunday. The deal would leave the existing management in charge.

His intention to take the business private is good news for shareholders who have seen their shares collapse from a peak of over £32 a share last March to around £8.38 last week. The fall has been due to an "investor retreat" after Kelvin was forced out after staff accused him of inappropriately hugging them. A "brutal" environment for retail hasn't helped matters either.

A buyout may provide some relief for shareholders, but it makes less sense for the buyers, says Lisa Jucca for Breakingviews. While Ted Baker's shares are relatively cheap, this is because the group "started to run out of steam in its key North American market last year". while the Ebitda margin, a key gauge of operating profitability, is set to fall to just 13% as the group has had to mark down unsold items and spend money improving logistics.

For the private-equity owners to achieve the 20% return on their investment that they expect, they would need to grow revenue by at least 6% a year, and boost the EBITDA margin to 15%. Ted Baker still has a lot going for it, says Miles Costello in The Times. It throws off plenty of cash, while a strong Christmas suggests the brand retains plenty of cachet. Still, the success of any buyout could hinge on whether Ray Kelvin "has the appetite" for putting in the work needed to turn the firm around.

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