SHAREHOLDERS in Marks & Spencer will stage the biggest revolt in recent City history this week when up to a third of them vote against or abstain from the election of Sir Stuart Rose as executive chairman.

The proportion of rebels is unprecedented for a FTSE 100 group. A 5%-10% vote against would normally be regarded as high.

The vote will be a stiff rebuke to the retailer’s board and Rose in particular. Investors have been angered by the manner in which he was promoted from chief executive to executive chairman despite their protests. The move contravenes corporate-governance guidelines, which insist that the two roles — chairman and chief executive — should be split.

Rose will also be questioned over M&S’s dire recent sales performance. Last week he revealed an unexpected 5.3% dip in sales, and warned of a two-year downturn in consumer confidence. M&S shares dived on the warning, finishing the week 32% down at 227p. In the past 12 months the shares have dropped 64%. This values the company at £3.6 billion.

City institutions hold most of the retail group’s shares. Yesterday City sources said the board was resigned to a revolt among 20% to 30% of shareholders, with about half of the rebels voting against Rose’s election and half abstaining — a traditional City way of indicating displeasure without registering a no vote.

A source close to Rose defended his decision to take up the dual role: “Stuart was genuinely undecided about whether he should go or stay. After discussions with the board he thought holding both posts would be a good interim solution, allowing him to step back to become chairman and find a successor.

“He is hugely disappointed that this has been interpreted as a power grab by an egotistical person. That is not the case.”

Two big funds, Schroders and Legal & General, have led the attack against M&S. Four large investors — ABP, Europe’s biggest pension fund, Universities Superannuation Scheme, Railpen, and the Co-operative Insurance Society, have already said they will vote against the company’s annual report and accounts.

While Rose has been quick to say M&S has suffered from a general dip in consumer demand, some analysts believe the company has specific problems. Last week Steve Esom, recruited from Waitrose only last year as head of food, left the company.

Leading City analyst Tony Shiret of Credit Suisse this weekend questioned the valuation of M&S and predicted the shares could plunge even further as the company comes under more scrutiny.

Shiret said M&S will have £3.4 billion of debt by the end of the year with ebitda (earnings before interest, taxes, depreciation and amortisation) of £1.2 billion.

“We are talking about a ratio of three times debt to ebitda, which is looking highly borrowed,” he said. “The share buyback strategy and capital spending programme have eroded its cash position.

“A lot of investors take comfort in M&S’s property portfolio, but the value of property is falling and 40% of the portfolio is pledged to the pension fund.

“The company has much less asset backing than is generally believed, and the danger for the shares is that they start to be valued on the same, low multiples as other clothing retailers with low asset backing.”

Rose has said he will press ahead with his spending plans despite the downturn.

Peter Montagnon, head of investment affairs at the Association of British Insurers, said: “We issued an amber top [a warning report ahead of a shareholder vote] a couple of weeks ago and now it’s really up to shareholders to take that into consideration and make a judgment.”

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