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Burberry seeks help to fight off potential takeover bid

Bryce Elder, Arash Massoudi and Patrick Jenkins
Burberry defends against potential takeover bid

A mystery investor has built up a stake of close to 5 per cent in Burberry, prompting Britain's best-known luxury fashion brand to seek help from its financial advisers to defend it against any potential takeover bid.

Burberry, with a market capitalization of £6bn, sought aid after its board could not determine the identity of the stakebuilder.

A person close to the company said that it had attempted unsuccessfully to ask HSBC, which is listed as the custodian for the position, to reveal its client.

The fashion company, which has seen its market value drop by more than a quarter amid a slowdown in Chinese demand, has called on its existing bankers at Robey Warshaw to help, according to people close to the situation. The group's corporate broker, Morgan Stanley, is also looking into the matter.

Analysts suggested that rival luxury goods groups such as LVMH, or private equity investors, could be behind the transaction with a view to launching a takeover. In a takeover, Burberry could be valued at £8bn, or £17 a share, according to analysis from Macquarie.

"Burberry is one of the few luxury brands without family interest and thus an easier target for acquisition," said Macquarie analyst Daniele Gianera.

Burberry is headed by Christopher Bailey, the brand's longstanding creative director who also became chief executive in May 2014. The group is concerned that an activist investor may be behind the stake, according to one person familiar with the matter.

The buyer's stake first went over the 5 per cent disclosure threshold on February 11, with HSBC reporting a total holding of 5.4 per cent to the market four days later.

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Whereas UK transparency rules usually require reporting of any shareholding over 3 per cent, investment managers are given partial exemption that requires them to disclose at more than 5 per cent. The stake has since been reduced to under that level.

Burberry, Robey Warshaw and Morgan Stanley declined to comment.

In recent weeks, Burberry has embarked on a £20m efficiency drive, cutting costs such as hiring, travel and expenses. The brand said last month that it would axe half its fashion shows, and eliminate the customary six-month waiting period before consumers can buy the latest designs.

Mr Bailey insisted at the time that saving money was not the objective of the revamped calendar. But he added: "Responsibly, looking at this, we have to make sure there is some kind of a saving."

Burberry makes 25 per cent of its sales in China and a further 10 per cent in Hong Kong, making the brand more reliant than most of its rivals on Chinese buyers — whether in the region or as tourists.

A slowing economy, together with a corruption crackdown initiated by President Xi Jinping in 2012, have damped spending on luxury items such as monogrammed ponchos and cashmere scarves and contributed to a dip in sales last summer.

However, Burberry returned to growth in China in the last three months of 2015, as military-inspired rucksacks helped draw customers into its stores.

"The investments into the IT platform and the innovation in digital make Burberry the leader in exploiting new technologies to better manage operations and capture growth," said Macquarie's Ms Gianera. "We believe this represents attractive know-how for an eventual buyer of the business to be replicated on other brands."