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August 23, 2010

Swannell appointment signals new era at M&S

Marks and Spencer's shares climbed 6.1 pence, or 1.8%, to GBP339 pence in London trading today (23 August) on the announcement that the retailer has appointed Robert Swannell to replace Sir Stuart Rose as chairman next year.

By Michelle Russell

Marks and Spencer’s shares climbed 6.1 pence, or 1.8%, to GBP339 pence in London trading today (23 August) on the announcement that the retailer has appointed Robert Swannell to replace Sir Stuart Rose as chairman next year.

While Swannell is not necessarily the first name that comes to mind for one of the most sought-after and high-profile non-executive roles in the UK, analysts believe he may be the right man for the role, given his background in banking.

“His appointment makes strategic sense,” Neil Saunders, an analyst for Verdict Research told just-food. “He knows his way around M&S, retail and the City. Sure, he’s not as big a personality as Sir Stuart, but he is just as competent and that’s what counts.”

Indeed, Swannell will bring considerable City experience to the grocery retailer, having spent over 30 years in investment banking with Schroders/Citigroup. He was formerly vice chairman of Citi Europe and co-chairman of Citi’s European Investment Bank. He is currently chairman of HMV Group, senior independent director of The British Land Company, which he joined in 1999, and senior independent non-executive director of 3i Group.

And he helped defend Marks and Spencer Group against billionaire Sir Philip Green’s takeover bid six years ago.

Swannell’s appointment comes amid a raft of recent management changes at the retailer.

Management shake-upRose, who angered shareholders by combining the roles of chairman and chief executive of the retail giant in 2008, was due to leave by the end of March 2011.

He was succeeded as chief executive in May this year by Marc Bolland, former head of UK supermarket chain Morrison’s. Alan Stewart was then hired in August as CFO from aircraft leasing company AWAS, and will start at M&S in October. He replaces Ian Dyson, 47, who is joining UK pub group Punch Taverns as CEO.

“Swannell is what M&S needs, a respected City heavyweight who can do the chairman stuff and let Bolland get on with running things,” Nick Bubb, an analyst at Arden Partners told Bloomberg. “Swannell knows retailing because he used to advise the industry, so we should think of this as a City banker becomes a non-executive chairman.”

Swannell will join the M&S board on 4 October 2010 as a non-executive director prior to taking up his position as chairman on 4 January 2011.

On becoming chairman he will receive an annual salary of GBP450,000, almost half the GBP875,000 Rose is being paid as executive chairman. And he won’t be eligible for a bonus or share options.

Saunders believes Swannell has a very tough act to follow. “One challenge is his relationship with the thousands of small shareholders; they adored Sir Stuart. In many ways, winning over these small shareholders is a more difficult task than managing the larger institutional shareholders in the City,” Saunders said.

Another challenge might be his chairmanship of HMV, whose share price has slumped 36% this year, and is seeking to overcome competition from internet retailers and Apple Inc’s iTunes.

“Why would he vaguely be considered as chairman of Marks & Spencer with that record at HMV?” Tony Shiret, an analyst at Credit Suisse, commented to Bloomberg.

However, M&S said it had no concerns over Swannell remaining as chairman of HMV Group as the firms do not operate in competing spaces.

What next?Swannell is joining a firm that made a good start to 2010 when it reported a 3.6% rise in first-quarter sales. Often viewed as a bellwether for UK consumer sentiment, the group said sales from stores open at least a year rose 3.6% in the 13 weeks to 3 July from a year earlier. At the end of May, M&S posted higher annual profits and sales, including the first rise in food sales since 2007.

Analysts say the retailer needs to update its clothing line, step up its food operations, expand its international business and deal with its pension fund deficit.

Swannell’s background in doing deals however, has prompted some to suggest M&S either plans an acquisition or sees itself as a takeover target.

Nonetheless, securing the services of a new chairman may well mark the end of what has been a turbulent period for the retailer, which has been criticised by shareholders for poor succession planning.

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