Green's reputation is his biggest enemy in bid

Freshfields conflict
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The Independent Online

From The outside, Philip Green seems the very caricature of the bullying financier who believes too much in his own PR. As a consequence, many in the City see it as inevitable that one day he will do the deal too far and end up falling off a cliff. M&S, some believe, might be that nemesis.

From The outside, Philip Green seems the very caricature of the bullying financier who believes too much in his own PR. As a consequence, many in the City see it as inevitable that one day he will do the deal too far and end up falling off a cliff. M&S, some believe, might be that nemesis.

Yet beneath the bombast, he's not at all like that. The reality is that Mr Green is an extraordinarily clever, calculating numbers man, and the one thing he won't allow himself to do is overpay for Marks & Spencer, thereby endangering his hard won reputation and wealth.

It therefore seems to me quite possible that at some stage in the next few weeks he'll quietly pack his tent and withdraw his tanks. The fact of the matter is that he's been outmanoeuvred. From the moment his intentions leaked late last week, Mr Green was in trouble.

What would have seemed a reasonably good price if delivered with the element of surprise looked utterly derisory by the time it was made on Thursday, with the shares by then running ahead of themselves. Even the great sleeping beast of M&S was sufficiently awakened by the leak to realise the deadly peril it was in, and with the appointment of Stuart Rose, take evasive action.

Mr Green no doubt has the fire power to go higher. If he wanted to raise more equity, there would be a queue stretching all the way to his Monaco home lining up for a seat at the table. What's happened so far would in any case not have come as any great surprise to him. He would have expected the board to have rejected his limited due diligence request, and he would have expected something like the Stuart Rose appointment.

But he won't want to go a lot higher, and the bigger the slice of the action he offers to outsiders, the more it dilutes his own control. All of a sudden, Mr Green finds himself a victim of his own reputation. The more he pays, the more M&S shareholders will think the company is worth. Mr Green's stellar reputation as a buyer and manager of companies has worked wonders for him in raising the finance to bid, but it's now acting against him in convincing shareholders they should sell.

The wise thing to do would be to make a dignified withdrawal and see what happens to the M&S share price once the prop of his interest is removed. He could even buy a small stake, by way of a calling card left behind should Mr Rose's talents as a retailer prove more hype than reality. Inevitably, he'll be lambasted for bottling out. It would also be a bitter disappointment for a man said to be obsessed with the idea of running and controlling M&S. But whatever else Mr Green does, he's not going to let his ego get the better of his judgement.

Mr Rose is being greeted in the City like a new messiah, yet the challenge he faces is a formidable one, the more so as he will be judged on his ability to deliver top line growth as well as rising returns to shareholders. It may well be that M&S's legacy network of large high street stores make the two things incompatible - that higher returns require the business to be shrunk. Ironically, that task would be more easily accomplished in private equity than amid the shifting sands of stock market sentiment.

Freshfields conflict

Hugh Crisp, chief executive of the City law firm Freshfields Bruckhaus Deringer, is spitting tacks over this week's court decision to place him offside in the bidding war for Marks & Spencer. There was no conflict of interest, he fumes, in acting for Philip Green that wasn't being adequately addressed by the existence of chinese walls. It wasn't even as if Freshfields had been M&S's lead City lawyer; in fact its work for M&S had been confined to contractual matters.

Unfortunately for Freshfields, one of those contracts was the per una deal with George Davies, which just so happens to be a key area of contention in Mr Green's bid. It doesn't matter how much Freshfields insists that the chinese walls weren't breached; if there is the remotest suspicion that someone has been peeking over them, then it amounts to the same thing. Even the presiding judge, who presumably knows the law as well as any, found it impossible not to entertain the thought that client confidentiality hadn't been breached.

Mr Crisp's point is that M&S knew full well that Freshfields wouldn't do such a thing and was only using the supposed conflict as a ruse for point scoring against the Philip Green camp. To which one might respond, what's wrong with that? The idea that M&S was going to roll over and let its tummy be tickled, if that's what Freshfields imagined, is naive. This is war, and if sullying the good name of Freshfields is part of the price that has to be paid to see off Philip Green, then the M&S camp was bound to try it on. It's all part of the cut and thrust of a contested takeover battle.

The Law Society is conducting a study into the whole issue of conflict of interest with the intention of drawing up guidelines. The Freshfields fracas will give added impetus. Mr Crisp reasonably points out that if law firms are to be barred on grounds of conflict of interest as limited as this one, then nobody would be able to act for anyone. All City law firms are chock-a-block with conflicts of this type. If they were all banned, the City would grind to a halt.

What this suggests, however, is not that conflict of interest should be tolerated, but that there are not enough law firms. The situation is even worse among accountancy practices, where the demise of Andersen means there are only four firms capable of conducting an international audit or due diligence. Yet even in the legal profession, the situation is bad enough.

The network of top City law firms is little short of a closed shop, or cartel. Miraculously, they all seem to charge the same exorbitant fees and because there are so few of them, they also seem to regard it as perfectly acceptable to serve clients who are often vicious competitors, or as in this case, find themselves in opposing corners of a bid battle. The courts were right to ban Freshfields from acting. Let it serve as an example to others and a catalyst for change.

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