Flanked by his recently recruited chief executive Stuart Rose, Myners, the stand-in chairman at M&S, looked from Green to Richard Sharpe, the Goldman Sachs banker advising Green. As well as leading the discussion, Myners had been assiduously taking notes and wanted everything to be in order. Rose sat quietly, taking in his rival.
Green confirmed that yes, that was indeed what he wanted. But it was not the only thing.
Detailed in a four-page letter addressed to the board of M&S, Green had outlined 13 items he wanted information on or his bid would not happen. He took the two M&S chiefs through his list of demands, including a breakdown of the stock sitting in its warehouses and details of committed spending plans for the group’s Simply Food chain.
“For that amount of money, I would ask the very same questions myself,” said Rose, before Green outlined the details of the £11billion he had amassed to pay for the deal.
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The meeting, which had kicked off at 4.15 on Wednesday afternoon in a smartly furnished room in the townhouse office of Morgan Stanley in London’s Upper Grosvenor Street, did not last long. Myners and Rose returned to M&S headquarters in Baker Street to lead a hastily convened board meeting.
The purple-covered wooden chairs in the M&S boardroom are not especially comfortable but it did not matter; the ensuing discussion did not drag on. Executives, led by Rose, and the non-executives including Myners, Kevin Lomax and Brian Baldock, agreed their response in less than the time it took for Greece to force a draw with Spain in that afternoon’s Euro 2004 football match. It fell to Myners to call Green, who had returned to the BHS head office on Marylebone Road. With Rose listening in, the chairman tried to inject some levity into proceedings.
“I have to say we are hugely impressed with the finance package you have got,” he said. Then came the hammer blow. “That’s the sweet bit of the pill. But 370p per share is not sufficient.”
Green was quick to point out the error. “May I remind you, the offer says no less than 370p,” he said as he struggled to contain his anger and disappointment. “Are you telling me there’s no discussion?” The reply offered no consolation. “No. That’s the unanimous decision of the board.”
The conversation briefly focused on the timing of the announcement. As if the tension between the two sides was not strained enough already, relations were hardly helped by the M&S decision to announce the news of the fresh offer — and its rejection — on Wednesday night.
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Green felt they had agreed to say nothing until Thursday morning. Citing an obligation to institutions in New York, M&S went public and Rose dutifully appeared on the BBC News at Ten, telling the nation that M&S was not prepared to play ball with the owner of Arcadia and BHS.
“Their rejection of not less than 370p in cash took less time than 310p and equity,” said a tired-looking Green, fielding phone calls from advisers as he watched England beat Switzerland on Thursday night. “It seems the more you offer, it takes less time to consider it.”
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THIS weekend, the City is attempting its own version of the Alfred Hitchcock movie The Lady Vanishes. Over the past few days, bankers and stockbrokers in both the Green and M&S camps have been frantically trying to track down Amelia Morris, a fund manager at M&S’s biggest investor, Brandes Investment Partners.
She is the woman who will play the key role in determining the future ownership of the high-street chain.
Advisers to both companies and fellow investors alike identify Brandes as playing a pivotal role.
On Thursday, trading in M&S shares was reaching meltdown. About 104m shares changed hands, but the one person everyone was trying to reach was travelling and out of contact. Morris controls 11.96% of the stock and getting her on side will be crucial if Green is to succeed.
Fellow shareholders recognise that M&S’s “unusual” share register means that Brandes and the other big American investors will dictate what happens next. They must decide whether to press the non-executives into allowing Green the access he wants to help him table a formal offer.
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Green thinks the countdown to a planned trading update by Rose next month provides an opportunity for investors to judge both men.
“He has announced he is going to report on July 12 on current trading and strategy,” said Green. “He announced that after 14 days in the job. We have said we only want 10 or 14 days to carry out our review of the questions we’ve asked. Shareholders would then be able to judge, if we have the same information, whether the results of our strategy, which we have delivered on before, would be something they wish to believe or not believe.”
He is supported by some investors who believe the board has been “over-hasty” and “cavalier” in dismissing Green. But they are unlikely to act until Brandes’s position becomes clearer.
This does not wash with Rose. He said: “(The proposal) significantly falls short of what we think is value for the business. We’ve not been sitting on our backsides over the last two weeks since Philip’s last offer, saying we’ll wait until the next one comes in before we decide. We’ve done a lot of work on what we think the intrinsic value is.”
Green has hit back. “Where am I trying to buy this business on the cheap? Share prices dictate what companies are worth. Very few UK institutions have been interested in buying shares. The fundamentals of the business have not changed.”
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Some shareholders are supportive of the M&S board’s stance and it is clear there is a degree of polarisation. On Thursday, the first day of trading after M&S announced it had rejected a second takeover, the only traditional institution that was buying stock was Standard Life Investments. The rest of the available shares were being snapped up by hedge funds, which are playing an increasingly central role in the direction of City bid battles.
Another hurdle that Green has to jump is that there is now an innate suspicion among institutional investors that Green only buys on the cheap and that if he is interested, then the assets must be undervalued, an attitude that annoys Green intensely. “Is this now my handicap — that people want to second guess what I am doing, that they think I know something no-one else knows? That is why I am offering a share in the upside.”
THE pressure is on Rose to say something tangible when he addresses the City in three weeks. Having been so dismissive of Green, Rose needs to have a convincing plan of his own to get the retailer back on track. Last night he declined to comment on the detail. “If I told you what’s in my mind, there’d be no point in me turning up on July 12,” he said. He promised that the review would be “pretty wide-ranging”.
Robert Talbut, chief investment officer at Isis Asset Management, said: “He has to come out with a plan that justifies why we should continue to stick with him.”
Green thinks investors should be able to spot the difference between his style and Rose’s. “Investors have to decide what really needs to be done to the company and whether it can get executed. I think (Rose) would agree we do different things in life. He has been more corporate focused while I have been in the engine room, repairing things.”
At least as he prepares for the City presentation next month, Rose can avoid the distraction facing many head-office staffers just now. Hundreds of employees are in the middle of a move to the company’s ultra-modern new offices in Paddington, but Rose and other key staff are staying put until the future is more certain.
While Green’s prospects of acquiring M&S look less than rosy, his goal is not yet out of reach and the mood in his camp is calm.
Peter Cummings, managing director of corporate banking at HBOS, said: “The ball is very much in the shareholders’ court. We have put down an offer which warrants serious consideration by the board and shareholders.”
The Green camp now hopes shareholders will exert pressure on Rose and the M&S directors to at least spend a bit more time considering the proposal; some think the board is walking a fine line between acceptable behaviour and arrogance.
Green himself is perplexed that the board did not seek an explanation in particular of what the “not less” part of “not less than 370p” might translate into.
“They have not asked about the equity component or what their shareholders can expect to get,” he said. “They did not even explore it with us.”
Green is realistic enough to know that there is no point hanging around for ever, waiting for M&S and its board to engage. Launching a hostile takeover bid is unlikely to appeal; if Green does not get the backing of Brandes, his friends think he could walk away even before Rose sets out his strategy stall on July 12.
HOW GREEN’S OFFER WORKS
PHILIP GREEN is offering investors the chance to participate in his bid with what is known as “stub equity”.
In his first indicative offer, he proposed that shareholders receive 310p in cash per M&S share and that they end up with 25% of the new company he had set up to acquire the flagship retailer.
That was rejected and his revised offer was a more complex affair, providing a choice and promised “not less than 370p per share”. This would either be all in cash or, if investors wanted, they could take a mixture of cash and equity in the new vehicle.
It did not detail how the offer might be structured, leading to speculation about the value of the proposal’s equity component. Analysts reckoned the equity in the original offer was worth from around 30p up to 80p per share. That would take the value of Green’s revised proposal well north of 370p.
According to Spencer Summerfield, head of corporate finance at City lawyers Travers Smith Braithwaite, offering stub equity could heal the rift between fund managers and private-equity firms taking companies private.