Christopher Bailey should beware Burberry takeover rumours

The fashion brand is investigating a mystery investor amid concerns over the company's performance.

by Adam Gale
Last Updated: 08 Mar 2016

Fashion brand Burberry has a mystery investor. That might sound, like, totally exciting, but it’s sadly not the same as having a secret admirer. This is more cloak and daggers than flowers and chocolates (or, indeed, Horseferry check bags with leather trim).   

Investment managers in the UK are required to disclose any holding greater than 5% in a public company. Whoever this is, they bought just under 5%. Chief executive and chief creative officer Christopher Bailey must be concerned. According to the FT, Burberry asked HSBC, which is the custodian of the holding, for a name but was rebuffed. It’s now asking its own bankers to do some digging.

Why all the secrecy? Well, what will have Bailey worried is the chance that the mystery investor is a dreaded activist, or even a rival or private equity firm planning a full-on hostile takeover - with a market cap of around £6bn, it's now eminently buyable. In either case they’d benefit from being able to sweet talk the other investors without the current management knowing. If they were successful, Bailey’s own position wouldn’t look so good.

It’s not entirely surprising. CEOs have short life expectancies these days anyway, and when a company hits a rocky patch it’s natural for investors to look for fresh blood. They won’t be happy that Burberry’s share price fell 28% over the last 12 months (it rose 6% this morning on today’s news, however, to £14.54).

The reason is the slowdown in China which, combined with austere anti-gift-giving rules handed down from the politburo, for some reason dampened demand for cashmere scarves and tartan-lined trench coats. Sales in its crucial Asian markets were down by ‘mid-single digits’ in its third quarter, the firm admitted.

Bailey has responded to this ‘challenging environment’ by launching an efficiency drive but, fairly or unfairly, investors might wonder whether a designer is better placed to cut fabric than costs. He will surely hope that Burberry’s full year results surprise and delight when they are unveiled in May.

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