Gazumped! Sir Geoff Mulcahy thought he had ASDA in his pocket. then Wal-Mart picked it. So can the man from Kingfisher bounce back?

SIR GEOFF MULCAHY is taking it on the chin. "I don't feel boxed in," insists the chief executive of Kingfisher, the Woolworth to Comet worldwide retail group. The great survivor of the UK retail scene has been coming to terms with Wal-Mart's deft gazumping of his agreed pounds 17bn merger with the Asda supermarket chain. "If I look back over the years we have had our ups and downs," rues Sir Geoff. "When I go back to the early days, with a loss-making Woolworths and a tiny B&Q, you could have got quite depressed about it. But we've done quite a lot since then." Losing Asda to the mighty US discount retailer is not the first setback to hit him.

On Monday last week Sir Geoff was driving from his home in Belgravia, west London, to Kingfisher's offices on Marylebone Road in a cheerful frame of mind. He was just days away from clinching the most important deal of his career. The grand plan, some years in the making, was to use Asda's supermarkets to create a massive food and general merchandise hypermarket format that could be exported around the world. Kingfisher's shareholders had already approved the deal. Asda's were due to vote this week. As usual, Sir Geoff was at his desk at 7.10am when the phone rang. It was Archie Norman, chairman of Asda, former finance director of Kingfisher. "We have a little problem," Mr Norman said. Sir Geoff suddenly found himself jilted, because Wal-Mart's eleventh-hour pounds 6.7bn takeover bid was too good for Asda to refuse.

Thus was Sir Geoff's grand design torn up and Kingfisher's strategy put back several years. "But it's no good crying over spilt milk," says Sir Geoff. Not a man to waste time, 48 hours later he was straight on a plane to France, and then immediately off to Shanghai to open the first branch in China of B&Q, Kingfisher's DIY chain. Not even the customary 12-course banquet of unidentifiable Chinese delicacies could weaken his apparent resilience.

Former Kingfisher executives say this may be just a veneer. "He'll take it in his stride outwardly. Inwardly he'll be mulling all the options," says one former associate. "He'll be quite tormented. He's always had Wal-Mart on his mind. And he'll be thinking, `Will this get other people in the US thinking about the possibilities here?'." Another says: "He's very difficult to read. He keeps his emotions to himself. He's a man of few words."

At the age of 57, Sir Geoff could be forgiven if he decided he'd had enough. He has been running Kingfisher since 1982 when Charterhouse Bank backed the pounds 310m buy-out of Woolworth Holdings. He regularly earns pounds 1m a year in salary and bonuses, and his share options have made him a rich man. But stepping back from the fray is not in his nature, particularly when the going gets tough. He regularly starts work at 7am and often works through until 10pm breaking only for lunch at his regular haunt, the Savoy.

His legendary work rate would leave colleagues gasping. One recalls: "I would drive in early to miss the traffic and get there at about 7.30am and Geoff would already be there. I'd leave late to miss the traffic and he'd still be there." As one ex-Kingfisher manager says: "He'll work all week then at weekends he'll either pop into a couple of Woolworths or Superdrugs [Kingfisher's chemist chain] or he'll fly to the continent or the States to see what is happening there."

Hence the real reversal of fortune which Mr Norman's "little problem" represented. At once it delivered twin arrows to Kingfisher's strategic heart. First it deprived Sir Geoff of his long-held ambition to weld together a supermarket operation with his Woolworths stores to develop a hypermarket format capable of global reach. "Sir Geoff has been looking at Asda for years," one former Kingfisher colleague says. "He first considered having a crack at it back in Asda's dark days in 1990, before Archie Norman started his rescue act. And he kept mentioning it after that too."

Secondly, as a result of Asda's deal, several of Kingfisher's UK chains, particularly Woolworth, Superdrug and Comet, are suddenly facing the most feared retail competitor in the world. Wal-Mart's buying power is already greater than the gross domestic product of many countries.

Those who have worked with Sir Geoff say he has long held two obsessions. One is that Home Depot, the US chain of huge DIY stores, would come to Britain and undermine his beloved B&Q. The second is that Wal-Mart would come and cut the legs from underneath the rest of Kingfisher's UK outlets. "These were the two companies he was always worried about," one former colleague says. "It was a genuine obsession." Another says: "He would always say `What are we going to do about Wal-Mart?' He was always worried about them pitching up on his doorstep."

Now it has happened, and under his very nose. During their telephone call, Mr Norman explained that Wal-Mart's superior cash offer - at 220p per share - left the Asda board little choice but to recommend it to shareholders. Sir Geoff "said he was disappointed but understood our reasons", Mr Norman said later.

And fate served up more bad news for Sir Geoff almost immediately. Geoff Brady, the Kingfisher executive in charge of expanding the group's own Wal-Mart-style superstores, announced he was quitting to run Allied Carpets. And, with the spotlight firmly on Kingfisher, it really did not help that the head of corporate public relations had just decided to leave after a row with the investor relations department.

Telephoning from his Shanghai hotel last week, Sir Geoff played down his recent setbacks. He even maintained his dry sense of humour, saying of the international call, "I will, of course, be reversing the charges". Conversations with Sir Geoff are not always easy. He speaks in a slow, languid manner which often leaves the impression that he has perhaps, forgotten the question or died of boredom midway through his response. It is this that led to his somewhat cruel nickname "Mogadon Mulcahy" though he can be perfectly charming company.

"Obviously I was disappointed. A lot of people, not just me, had worked very hard in it [the Asda deal]." Though he will not suggest any sense of betrayal by Archie Norman, the man he once hired as Kingfisher finance director, there is a hint of mild rancour. "It was a bit of a volte face by Asda for them to sell out for cash rather than give its investors a continuing stake in the merged business."

Opinions are divided on where Sir Geoff might turn next. One former Kingfisher executive says: "I think he is a bit boxed in, strategically. He wants to expand in DIY and electricals in Europe. But without Asda in the UK, where does that leave Woolworths and Superdrug? In a sense I think he might almost give up in Britain, run it for cash and concentrate on Europe."

Others reckon he might sell Woollies, Superdrug and possibly even Comet. "He could choose to sell them, but their value has probably been diminished by Wal-Mart coming in. Also, who would buy them?" one asks. Others point out that Sir Geoff has never been a great seller of businesses, preferring the wider options that a strong balance sheet and a larger group enjoys. It is this that has enabled him to strike deals such as the 1993 pounds 1.1bn purchase of Darty, the French electrical chain and the acquisition of But, the French furnishings and electricals giant. It also allowed him to talk with Castorama the French DIY giant on equal terms, eventually leading to a merger of Castorama and B&Q last year. Sir Geoff himself plays down the likelihood of disposals. "I don't think that's necessary."

The addition of a powerful supermarket business remains high on the agenda because Sir Geoff recognises that to develop a real hypermarket format requires the regular customer throughput that only food purchases generate. But he plays down suggestions that he might look for another UK partner. "Food is a good element to get if you can ... But it's not a must-have. It need not necessarily be the UK. We've got more options than that."

He is keen to expand more in Europe, particularly in DIY and electrical retailing. A German DIY deal could be just weeks away, though a tie-up with Hornbach, a family controlled chain, appears to have been put on the back burner.

After 17 years at the helm, Sir Geoff is likely to take the long-term view. It was in 1982 that, after stints at Esso, Norton Abrasives and British Sugar, mostly in finance director positions, the Manchester University and Harvard Business School-educated Mulcahy first broke into the national consciousness. The Woolworths buy-out was the start of what is now one of Britain's largest retailers.

A glance back to then shows how far the group has come. When the buy- out was struck,Woolworths was losing money, and with its cheap, shoddy stores and poor service, was widely regarded as a high street joke. B&Q was tiny and operating in a market that was then still unproven. Now Kingfisher has sales of pounds 7.5bn and is one of Britain's top five retailers.

And Sir Geoff is still there. Lest we forget, many of his original peer group, such as Burton's Ralph Halpern, Gerald Ratner and even Marks & Spencer's Sir Richard Greenbury, have either imploded or faded away.

The question now is can he fight back from his latest setback? It helps, of course, that he has been here before. It was in 1995, after a calamitous profits warning caused by slip-ups at Woolworths and Comet, that Sir Geoff came perilously close to the chop himself. With a true survivor's instinct, Sir Geoff, who was then chairman, pledged to turn the group round and installed himself once more as chief executive whilst offering up several boardroom colleagues as sacrifices. Out went Alan Smith, the then chief executive, who had joined from Marks & Spencer and is now chairman of Storehouse. Also out went finance director James Kerr-Muir and Nigel Whittaker, corporate affairs director and a Mulcahy cohort for more than 20 years.

Having asked the City for a chance to put matters right he proceeded to deliver. In the space of two years he went from zero to hero with the shares soaring. From the low of 194.5p in 1995 they rose to a recent peak of 930p. The stock has outperformed the market by more than 40 per cent in the past five years. In that time Sir Geoff pulled off a

string of deals that transformed the business from a purely domestic retailer to a European powerhouse with a fledgling Internet joint venture with LVMH, the French luxury goods group, and expanding interests in the Far East. Now he must prove the doubters wrong again.

Perhaps Sir Geoff will be musing over the options as he takes to the high seas. Sailing is one of his more recently acquired pursuits and one he follows avidly. He has two yachts, one called Noonmark VI , the other called No Comment, a little joke about his favourite response to intrusive journalists' questions. He is a very successful yachtsman. Last September he came third in the Swan World Championships in Sardinia, winning a Rolex watch for his performance.

He is also a keen squash player, though his loping, gangly gait may make him seem an unlikely panther around the court. Once, celebrating his knighthood seven years ago at the Oxford home of his long-standing friend Victor Blank of Charterhouse Bank, he ended up playing squash with Mrs Blank until 2am.

His private life is described by those who know him as "complicated". Married with two children, Sir Geoff keeps a house in Chelsea while his wife, Lady Valerie, lives in Dulwich where she teaches at a private school. The pair are still friends and attend functions together but are effectively separated. One of Sir Geoff's recent liaisons was with Ann Iverson, the flamboyant American whose brief tenure as chief executive at Laura Ashley ended in disaster. Sir Geoff hated this being mentioned in public though some people looked at him with renewed admiration when she appeared in a raunchy pose in an issue of Vogue at the time, clad only in a black leather coat.

But, these titbits apart, Sir Geoff remains largely an enigma. Few claim to know him well. In newspaper profiles, he has become known as the man who once installed his own central heating and fiddles with paper clips while he cogitates. "I don't think anyone really knows him," says Richard Hyman of Verdict Research. Those that work with him say he can be charming company if uninterested in small talk. "He loves intellectualising about retailing. If you want to talk about that, he'll talk for hours."

His management style is also rather exclusive and aloof. He is a great lover of McKinsey, the management consultants who always seem to be working at Kingfisher's headquarters, racking up impressive fees. But managers are often kept a little in the dark. They go on holiday and he works around them, some say. Reporting lines are flexible to say the least, with Sir Geoff always intervening. But while ex-employees sometimes complain, they remain full of admiration for what he has achieved and, deep down, it is clear they like him.

Sir Geoff himself is undaunted. He points to expanding global electrical and DIY interests whilst claiming Kingfisher is more geographically diversified than almost any other major UK retailer. "Within the UK," he says, "we've got B&Q growing quite nicely. Comet is going well. Woolworths will open more space this year than for a long time. In fact, I think we have better growth prospects than virtually any other UK retailer."

He also has Big W, his Wal-Mart wannabe. The first store opened in Edinburgh this month and experts say first impressions are encouraging. The store is big (70,000sq ft), which is almost twice the size of a conventional Asda, but is focused purely on general merchandise. Above all it is cheap.

There are another four Big W's planned. And Sir Geoff points out that the man charged with expanding the chain, Bob Hetherington, is ex-Wal- Mart and well-equipped to compete with the new US entrant.

Asked whether he feels depressed about the task ahead, he laughs. "People said Toys R Us would destroy our toys business at Woolworths, but Woolworths has increased its market share since then and Toys R Us have been looking to sell their business in Europe. There will be an additional element of competition but Kingfisher is in very good shape."