Bosses admit they face a battle

PHILIP Green's timing is perfect. In targeting Marks & Spencer, he has caught the company while it is looking for a new chairman. His tilt at the venerable retailer comes as its sales line has faltered and chief executive Roger Holmes is looking increasingly under pressure.

Piers de Montfort, the Morgan Stanley merchant banker who played a pivotal role in seeing off Green when he threatened to go for M&S four years ago, has just handed in his notice to go to Credit Suisse First Boston.

Even M&S's broker Cazenove has major distractions - trying to work out whether it should float or be taken over, in addition to worrying about its clients.

In short, M&S is weak. And though Green retired hurt from the fray when he last suggested he might have a go at M&S, this time he appears better prepared. Not least, he has shown with Bhs and Arcadia that he has a real talent for squeezing profits from retailers under his control.

M&S has looked vulnerable for weeks, if not months. Yet when the news of Green's bid plans emerged on Thursday, there were precious few signs that M&S was prepared to repel any assault.

This was despite heavy recent trading in the company's shares - consistently above the 20m seen on a typical day over previous months. There were flurries of activity -after a poor trading statement in April and again in May when M&S chairman Luc Vandevelde said he would go and the company recruited Kate Bostock to head womenswear. For the past three weeks, turnover in M&S shares has remained high.

But it took Green's statement on Thursday to prompt the company to fire off notices to registered shareholders to uncover their true owners.

The announcement was triggered by a surge in M&S's share price after lunch. The Takeover Panel was alerted - initially, it is understood, by M&S's 12.5% shareholder Brandes.

Plan advanced a day

THE Panel in turn spoke to Green's key lieutenant, Bob Wigley at Merrill Lynch. He got in touch with Green about 3.45pm. 'We have to make an announcement,' said the banker. And at 4.01pm, a statement was released: 'Revival, a company owned by Philip Green and members of his family, confirms that it is considering a possible offer for Marks & Spencer.'

Yes, Green had been forced to show his hand earlier than he intended - but by only a day.

He, the team from Merrill working alongside Goldman Sachs, bankers from HBoS, Royal Bank of Scotland and Barclays, and a team from City lawyers Freshfields had spent most of the previous 72 hours in a series of meetings in the City and at his Bhs offices on Marylebone Road, central London.

At times, according to someone who was present, 'there were 50 or more people in the room'. They had planned to go public on Friday. Printers had been lined up to start churning out documentation over this weekend.

Green is reluctant to be drawn on the way M&S is run at the moment. But he is known to be disdainful of the way the company buys its merchandise and controls its stock. And he thinks the creation of the Per Una sub-brand, the brainchild of George Davies, was a mistake.

Now he must find someone to chair the company that would own M&S - if his bid succeeds. 'That shouldn't be a problem,' said a Green ally. Green says he has yet to approach anyone for the job.

But it appears that he has the necessary financing pinned down. And he has insisted that none of the five banks involved - Merrills, Goldman Sachs, HBoS, RBS and Barclays - can offer to fund any possible rival bidder. They are tied to him alone.

On the face of it, a bid of about £10bn appears dauntingly large. But if Green were to achieve control, he would have obvious routes to recoup money and start to pay the debt down.

Property undervalued

M&S's financial services arm has a loan book of about £2.5bn - that could be sold on. And the book value of M&S properties is £2.1bn, but that is probably a huge under-estimate. The last property valuation was carried out in 1988 and buildings acquired since then sit in the books at cost. Green would have few problems in raising money against M&S's property portfolio.

For now, M&S is giving few clues about its likely strategy - if it has one - to see off Green. An analyst who knows the company well said: 'One approach would be to do some of the things Green is likely to do. But that would still leave them with two problems - being without a credible chairman and stuck with a chief executive in Roger Holmes who no one seems to think is likely to deliver.'

Until Green spells out the details of a bid, M&S does not have to make a public utterance. 'The ball is in his court,' said a company insider.

But M&S is unlikely to have to wait long. Green says that when he has got all his ducks in a row - probably this week - he will ask to see the M&S board 'to seek a recommendation'.

He has to appear polite. He has to go through the motions. But few believe M&S will go down without a fight. Despite its current boardroom problems and demoralisation among staff - particularly as they face a summer of disruption while they move out of their Baker Street headquarters into new offices not far away at Paddington -M&S is unlikely to give in too easily.

Public challenge

GREEN has already said that an offer would give M&S shareholders cash plus a stake in a new company that would seek a listing. That will appeal to investors who feel he got Bhs and Arcadia too cheaply. They want a slice of the action if M&S's annual profits return to the £1bn-plus seen in the latter part of the Sir Richard Greenbury era.

But heading a quoted company will also bring its challenges for Green. For a man with such a colourful history, whose last stock market foray, with Amber Day, ended sourly, the scrutiny of being in the public arena will be irksome. He pointedly said at the weekend: 'We want to keep to the business issues.'

He clearly does not relish a re-run of the acrimonious spat that broke out when he last signalled his intention to move in on M&S.

At the moment, the hassle of returning to the stock market is something he appears prepared to endure. The timing makes it just too attractive not to press ahead.

Additional reporting: Simon Watkins and Helen Dunne.