Sir Philip Green is in the mood to boost his high street portfolio with the best bits of Baugur – if the price is right, writes William Lyons
HE HAS a reputation as a swashbuckling billionaire, fond of private jets and celebrity parties in the Mediterranean sun. And while friends of Sir Philip Green say the public image conceals a natural caution, he clearly knows how to spot a good deal
.
This week, as he sits down with the board of men's outfitters Moss Bros to discuss what he describes as "the art of the possible", even his most cautious instincts will struggle to restrain what one analyst described as "a once in a generation opportunity to take over the British high street".
Green recently snapped up a 29% stake in the company, one of the oldest names on the high street. Now in his sights are some of the other blue-chip retailers.
As we head into the first recession for 15 years a shopping list of household brands such as Hamleys, Iceland and Karen Millen will be in the shop window as analysts predict a radical reshaping of the retail landscape. In recent years a string of familiar firms such as Safeway, Dixons and Courts have disappeared. Baugur, the Icelandic retailer that controls or has stakes in a large number of iconic stores through its Mosaic Fashion subsidiary, is struggling under a £1bn debt pile, so the list could get longer. Many in the sector are now asking who may follow.
"Green is in a strong position," says one City-based retail analyst. "He knows next year is going to be very tough and he knows that 50% of all retailers will be up for grabs, so it's a little like putting a child in a candy store. He's itching to do deals."
Top of his shopping list is Mosaic Fashion. Owned by Baugur and controlled by the publicity-shy Jon Asgeir Johannesson, its brands include Coast, Oasis and Karen Millen. Despite private equity partners such as TPG and Alchemy Partners waiting in the wings to snap up these brands, Green is known to be keen, but only if the deal is right.
"He is quite a cautious guy," says one analyst. "Although he has cash himself, his business is high debt. I don't see him taking any risks. He will make pretty sure that he can turn around the business and achieve decent returns."
Green is giving nothing away. When asked last week what he thought, he kept his cards close to his chest. "I was only offered Moss Bros," he said. "I have not been offered French Connection or Debenhams."
Green already has a sizeable chunk of Britain's retail cake and has astutely hired top talent – such as the model Kate Moss – to reinvigorate some tired brands. His Arcadia group now owns Bhs, Topshop, Topman, Burton, Miss Selfridge, Wallis, Evans and Dorothy Perkins. If he was successful in getting control of Baugur's retailers, a potential 10% share of the UK market would make his retail empire second only to Tesco, which accounts for more than 14%, or £1 in every £7 spent in the UK.
"He is a great trader, a great property guy and a great buyer," says Nick Bubb, retail analyst at Pali International. "Of course he would like to get bigger and take advantage of other people's problems but he is also very realistic because he knows he is in for a very hard and prolonged pounding from the British consumer. He also has to be mindful of the fact that his friendly bankers may not be quite so friendly in the future, so you can't afford to be too grand."
The uncertainty surrounding the future of HBOS, particularly its corporate arm headed up by Peter Cummings, cannot be underestimated. Cummings has been an influential figure in the rise of Green, driven by his success in buying Bhs in 2000 and the Arcadia Group in 2003, which boosted his personal wealth to an estimated £4.3bn. When Green wanted to make a £12.5bn takeover offer for Marks & Spencer in 2004, it was Cummings he phoned.
Those who know Green say in Moss Bros he saw a big opportunity to combine its suit hire business and Hugo Boss retail franchise with his own Bhs and Arcadia group. "Moss, and its hire business, is a brand we could do something with," Green said last week. "The Boss franchise is also interesting. And in terms of the main street business we have resources, sourcing and the other things in terms of scale that would be a big benefit."
It is understood he will be prepared for Moss Bros to remain a listed company and for other investors to remain as shareholders. If successful, the deal will also give him a listed vehicle with shares that could be used in future acquisitions. He has already made two abortive takeover bids for Marks & Spencer. With its shares falling 63% in the last 12 months there were even rumours of another bid.
One casualty in the coming retail fallout is likely to be Baugur's executive chairman Johannesson. Last month Green went to Reykjavik for crisis meetings with Icelandic government officials and bankers. He also met with Johannesson. Analysts say the purpose of the visit was to prevent a firesale of Baugur's assets and stock before Christmas, which in turn would have scuppered Green's trading figures. There was also the matter of Baugur's debt, which was larger then anyone previously thought.
In the Baugur holding company alone, Icelandic banks held £1bn. With earnings before interest, tax, depreciation and amortisation of £71.9m for the year to January, Mosaic has debt of £334m, an uncomfortable amount to try to service from cashflow that is under pressure from a severe consumer downturn.
For years Johannesson dazzled the Square Mile as he strutted up the British high street buying fashion stores and jewellers with a series of leveraged buyouts.
In the 1990s he set up his investment company Baugur, which now employs 50,000 and has a turnover of £6bn. It also has stakes in some of Britain's big retailers including Woolworths, Debenhams and House of Fraser.
But controversy has surrounded the high-living 41-year-old tycoon. This year he was found guilty of false accounting and given a three-month suspended prison sentence for bookkeeping offences.
"It is only just beginning to become apparent that Baugur was put together with smoke and mirrors," says one retail analyst. "It will implode and all the businesses will be up for sale at some stage. The business was put together by debt and really there has been no added value. The only business that is doing OK is Iceland."
Early last week Green was entertaining at one of his favourite London watering holes, Scott's seafood restaurant in Mayfair. His guests were X Factor creator Simon Cowell and the new City golden girl Amanda Staveley, who is close to some of the Middle East's wealthiest figures including Dr Sulaiman al-Fahim, the billionaire frontman of Abu Dhabi United Group.
Top of the conversation list would undoubtedly have been Baugur, and perhaps the Icelandic banking crisis or the opportunity to snap up assets in the new year. One thing is certain: as the future of the British high street stands in flux, whoever ends up the eventual winner is dependent on one factor – Britain's appetite for shopping.
