Jeremy Warner's Outlook: It's not just money - he wants a place in history

Striding out at Boots; National Express
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For Philip Green, owning or running Marks & Spencer is about more than just money. For him it would represent the pinnacle of an already stunningly successful career as a financier and retailer. It would also amount to one of the most dramatic corporate coups of the modern age, guaranteeing him a place in commercial history and underwriting a new business dynasty for possibly generations into the future. Most of all, it would command respect. He would have shown all those doubters and detractors just what he's capable of. As undisputed doyen of the British high street, Mr Green's critics and enemies would be finally vanquished. But will the City allow him?

There are two ways of looking at Mr Green's renewed assault on Marks & Spencer. One is that he's asking shareholders to pay for the bid with their own money. A familiar structure is being proposed which has rarely worked in the past.

Shareholders would be offered a mixture of cash and shares in a new company which would raise the cash element of the bid against the value of the assets acquired. Mr Green would take an unspecified proportion of the new company's equity in return for his expertise and trouble. Broadly the same structure was used by Sir James Goldsmith in his assault on BAT Industries, and by Hugh Osmond last year in his bid for Six Continents. In both cases, it was felt by shareholders that the bidder was being too greedy and the boarding parties were repelled.

Mr Green naturally has a rather different view. City institutions have seen Mr Green make an awful lot of money at their expense on at least two occasions in the past - once with Bhs, which he bought for a song and now forms the basis of his billionaire status, and then all over again with Arcadia. In meetings with M & S shareholders, Mr Green has been told that if they are going to agree to let Mr Green have the biggest retail prize of the lot, then they'll want a share of the action. Generously, he's prepared to give it to them. Quite how much remains to be seen. I suspect the outcome might depend on just how generous Mr Green is prepared to be.

To M & S lifers, Philip Green is their worst nightmare. Uncouth and iconoclastic, he'd cut huge swathes through the M & S cost base and he'd flog his suppliers into the ground. Mr Green's ability to squeeze money out of an organisation is not in doubt. There are no doubt huge amounts of excess working capital there for the taking in M & S, and he'd make the assets and brand sweat as never before.

But his abilities as a retailer, able to grow, and nurture the brand so that it generates decent levels of earnings and revenue growth long into the future are open to question. Nobody would call Bhs a wonderful shopping experience. In recent months it seems to have fared just as badly as M & S, if not worse. Arcadia has scarcely developed at all since Mr Green took it over. None of this matters when the business is privately owned and run for cash. But once City investors have had the low hanging fruits of leveraged ownership, then eventually it will matter, and all the old complaints about under investment and failure to move with the times will surface anew.

Even so, Mr Green is in with a chance, assuming the whole thing isn't scuppered by a Competition Commission investigation. On some estimates, Mr Green would have more than 25 per cent of the UK clothing market if he acquired M&S. His timing is immaculate, with M&S's turnaround strategy very obviously stalled, a newly discredited management and a lame duck chairman.

Nor is Mr Green still regarded as the disreputable chancer and bandit he perhaps was when he first tried to buy M&S four years ago. With his money making abilities established beyond doubt, he'll be much harder to dismiss this time around. According to his own calculations, Mr Green will make truck loads of money out of M & S even if he's forced to bid as high as £4 a share. He's also got some powerful backers, from Goldman Sachs and Merrill Lynch to Royal Bank of Scotland Group and Barclays. Mr Green is being forced to give away part of the upside to get a foot in the door, but unlike last time, it's not being slammed in his face.

Striding out at Boots

Compared with the debt leverage Philip Green is planning to apply to Marks & Spencer, the £700m share buy-back announced yesterday by Boots looks small beer. Yet it was enough to prompt a debt downgrade by Standard & Poor's, which cut the chemist's rating by two notches to A minus. Another factor in the downgrade was news that the company's pension fund is going back into equities.

Three years ago, Boots made a big play of the fact that it was "de-risking" its pension fund by switching out of equities into bonds, thereby achieving an almost perfect match between assets and liabilities. Whether by luck or judgment, the company's timing could hardly have been better. Equity markets continued to plummet, while bonds roared ahead. Now the trustees want to put 15 per cent of the fund's assets back into equities at a time when the cost to the company of providing pensions is in any case on the rise again.

The trustees describe the switch as no more than a tweaking of the existing strategy, brought about largely by the difficulty of finding bonds that last long enough to provide for very long term liabilities. None the less, it does make the pension fund inherently more risky than it was.

Still, for Richard Baker, the still newish chief executive at Boots, these are minor matters compared with the challenge of revitalising the 1,400 strong chain and making it once more price competitive.

To judge by yesterday's statement, he seems to be making an excellent start. Mr Baker unnerved investors a few months back by admitting that it would cost a great deal more to modernise the format than anyone had up until that point imagined. The share buy-back news goes some way to reassuring them that whatever these costs, Boots will remain a strongly cash generative business easily capable of sustaining a more highly geared balance sheet.

In other respects too, Mr Baker seems to be pushing all the right buttons. What he's doing is hardly rocket science, but it plainly needed a new broom to implement the obvious. Mr Baker is lucky in that he got to the patient before it entered the critical ward. Another year, and the task would have been much more difficult. In cutting prices and improved opening hours, Mr Baker is surrendering margin, but not precipitously so at this stage.

Some reduction in the margin was in any case always inevitable. Somehow or other, Boots had managed to raise it to a level that looked completely indefensible, given growing competition in its core markets from the big supermarket chains. Prices were very noticeably out of touch with the mainstream, and it was costing the company customers.

Boots will never be a price leader, but its high street presence gives a convenience factor the supermarkets can never hope to match. There's many a slip, yet the recovery strategy outlined by Mr Baker looks a good deal more plausible than the one advanced by M & S.

National Express

Lack of joined up thinking is a common enough thing in government, but it's reaching new heights of absurdity in the rail industry. Thus it is that the Office of Fair Trading has all of a sudden decided to refer to the Competition Commission National Express's acquisition of Greater Anglia rail franchise, even though the Strategic Rail Authority named National Express as preferred bidder for the franchise as long ago as last December. Furthermore, the company started operating the franchise in April. There's a reasonable enough case for a competition inquiry - the combination of Greater Anglia with National Express's existing franchise gives a monopoly on rail travel between London and Southend and a monopoly of both rail and coach travel between London and Norwich - but the time for such an investigation was before the franchise was awarded, not afterwards. National Express's chief executive, Philip White, is right to feel aggrieved.