Outlook: Baugur allowing, Green's Arcadia bid may be a winner

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Police raid in Iceland could jeopardise Philip Green's £800m bid for Arcadia

He's a bold, brash wheeler-dealer. And he's just about to take over the high street

Allen consolidates his position at crisis-hit Granada

When Philip Green said he was prepared to offer 365p a share for Arcadia, it was easy to say no. At 408p a share in cash, it's a lot harder, and not withstanding Standard Life's insistence that it won't sell for anything less than £5, many shareholders won't be able to resist. OK, so as ever with Mr Green this is not yet a firm offer. It's hedged around with conditions.

There are already a number of flies floating around in the ointment, not least the police raid on his Icelandic associates, Baugur. If the allegations of fraud turn out to be as false as Baugur claims, then presumably the Arcadia bid proceeds. But if they are serious enough to undermine Baugur's plans to sell its Arcadia stake to Mr Green and then buy some of the assets from him, then the bid falls apart.

Mr Green is offering a big premium over the recent trading range, but for Standard Life the valuation continues to look mean. Mr Green is that type of financier where you check your wallet after meeting him. He's got a history of picking up bombed out assets from disillusioned City investors at bargain basement prices and then turning them into gold. Good luck to him, but it has made the City look stupid and inept. Standard Life and others are determined they shouldn't be short changed again. If Mr Green thinks it worth paying 408p a share for Arcadia then it's almost certainly worth a lot more, they figure. Factor in the likely 5p a share final dividend shareholders would forgo by accepting the bid, and it doesn't look quite so generous anyway.

The real issue facing shareholders is how much of a recovery story Arcadia still is. The great bulk of the turnaround job has already been done. Against the 38p the shares were trading at two years ago, Mr Green's price certainly looks extraordinarily high. Shareholders have surely had most of the upside? Not according to Stuart Rose, the chief executive. He reckons he's still capable of nearly doubling the margin, from a current average of 6 per cent to 10 per cent or higher, so even if sales remain flat, there's still lots of potential for profits growth. Mr Green's price is a very healthy premium to what the shares have been trading at, but as a multiple of earnings it is also no more than a sector average. Is it not worth hanging around to see whether Arcadia is capable of more?

Maybe, but the problem with Arcadia as a company is that it invariably disappoints in the end. The pattern is one of a couple of good years followed by a series of cock-ups and a collapse back into crisis. That's why it trades at a discount to the rest of the sector. Nobody quite believes the recovery can be sustained. Perhaps it can. Mr Green is plainly prepared to take that risk. But with the consumer boom beginning to abate there may be tough times ahead on the high street, and when the going gets tough, Arcadia is usually one of the first to feel the pinch.

Privately, even Mr Rose admits that one day his luck may run out. One of the formats might suddenly go out of fashion, leaving the group with lots of unused floor space and unsold stock. Or there could be a recession. Whatever. For Mr Rose the decision on whether to accept Mr Green's money is perhaps more acute than for anyone. He'll take away a £23m profit on his share options if the bid succeeds. If he turns Mr Green down, shareholders will at least know he's putting his money where his mouth is.

Allen/Granada

Few company bosses survive the sort of crisis and turmoil that Granada has been through during its short two year life as an independently quoted media company. Yet Charles Allen, Granada's chairman, seems to have pulled it off. Many believe he should be taking the rap for the disaster of ITV Digital and for the more general crisis that ITV finds itself in. Instead, others have gone but Mr Allen remains. Indeed the latest casualty, Steve Morrison, the chief executive, seems only to strengthen Mr Allen's position as executive chairman, since he now takes on Mr Morrison's job as well.

It's hard to think of any obvious parallels in the corporate survival stakes. Sir Geoff Mulcahy survived a period of severe underperformance at Kingfisher by firing all those around him, but in the process he did at least have the good grace to split the roles of chairman and chief executive. Sir Martin Sorrell likewise managed to outlive the near insolvency of his WPP advertising group, but on that occasion the problem was more to do with poor financing than there being anything fundamentally wrong with the business. He's more than vindicated his tenacity since.

Investors can only hope that Mr Allen, suitably humbled by the experiences of the last two years, proves another case of the same thing. The appointment as deputy chairman of Sir George Russell, a former chairman of the Independent Television Commission and the national lottery company, Camelot, is not an obviously encouraging start. Sir George is nobody's poodle, but the dead hand of an old style broadcasting regulator is about the last thing ITV needs right now. Alright, so persuading the Government and regulators to allow the creation of a single ITV company may be a major part of Mr Allen's task for the next year, and in that endeavour, Sir George could prove useful.

But this is rather the nature of ITV's problem, is it not? Defending monopoly, manipulating public policy, talking with regulators and ministers, persuading them of the case for further consolidation, circling the wagons around commercial television's traditional franchise - for too long ITV has made these things its primary task. Meanwhile the world outside has changed, and surprise, surprise, ITV has found itself defending an ever shrinking part of the TV landscape.

ITV still makes some great programming, and it continues to be far and away the best platform for TV advertising. But there's been no serious entrepreneurial initiative for years. Even the ill-fated ITV Digital was originally conceived as a monopolistic carve up between ITV and BSkyB. As events subsequently proved, Granada and Carlton didn't have a clue about how to respond when BSkyB was turfed out of the consortium and began to do what businesses are supposed to do, compete head to head, in this case in the battle for digital subscribers.

If he's ever going to make a decent fist of ITV, Mr Allen will need to bring about root and branch cultural change. ITV lost its god given right to survive a long time ago. It just doesn't seem to have realised it yet. There's no particular appetite in the City for Mr Allen's head on a platter, despite the malaise, but he's very much on probation. In his defence, it can be said that he's a talented manager in a business where management talent is generally lacking, that he grasped the nettle of ITV Digital when nobody else would, and that he extracted Granada from the business as cleanly and with as little financial damage as anyone could have hoped for.

In so doing, he's proved himself a tough and effective operator. Now comes the hard part - rebuilding ITV. Price, as much as regulatory obstruction, remains the big barrier to the merger of Granada and Carlton to create a single ITV, but without cohesion ITV stands no chance at all, caught between the pincer movement of a resurgent and financially robust BBC and the steely determination of BSkyB's Tony Ball. Mr Ball's contempt for ITV is well known. Mr Allen's challenge is to prove it ill founded.

jeremy.warner@independent.co.uk