'Barbarian at the Gate' approach makes private equity history

Philip Green's audacious attempt to launch an £8.4bn bid for Marks & Spencer may have failed to impress the retailer's board but it has set the private equity world alight. Not since KKR launched its $31bn (£17bn) hostile bid for RJR Nabisco, the US food group, 15 years ago, has any predator set its sights as high as Mr Green.

Philip Green's audacious attempt to launch an £8.4bn bid for Marks & Spencer may have failed to impress the retailer's board but it has set the private equity world alight. Not since KKR launched its $31bn (£17bn) hostile bid for RJR Nabisco, the US food group, 15 years ago, has any predator set its sights as high as Mr Green.

The sheer fact that Mr Green - dubbed the new "barbarian at the gate" by venture capitalist insiders - has lined up a good £11bn of committed financing has already made private equity history. Were he to win a recommendation from the M&S board, his bid would become Europe's biggest public-to-private deal to date, stealing the crown from Italy's Seat Pagine Gialle, which was sold last year to a UK-led private equity consortium for €5.65bn (£4bn). Edmund Truell, a partner at Duke Street Capital, said: "It is an amazing achievement to have put that kind of funding together."

Indeed, such is the scale of Mr Green's achievement so far that many rival venture capitalists were yesterday wondering where he goes from here. With his financial backers - Barclays Capital, Goldman Sachs, Halifax, Merrill Lynch and Royal Bank of Scotland - already providing £7.9bn of debt financing, observers predicted that he would struggle to raise his 370p-per-share takeover proposal.

Fred Wakeman, a director of Advent International, a keen retail investor, said: "His timing is good, but is it getting too pricey for him? If he wants to raise the level of his offer he would need to up the equity level, putting more capital at risk and lowering his ultimate returns." Mr Wakeman added: "The leverage level of Mr Green's offer is already much higher than a typical deal ... He's got there because he has a tremendous track record and made a lot of people a lot of money. But there are size limitations to how much money he can raise and he's probably getting close."

The latest proposal from Revival Acquisitions, Mr Green's bid vehicle, includes £3bn of equity funding against just £1.5bn previously, £1.1bn of which has been put up by Mr Green and his family. The other £1.9bn has come from HBOS, Goldman Sachs and Barclays Capital, slashing Mr Green's equity stake to a maximum 44 per cent. Doubtless the canny Bhs owner would ensure he retains control by awarding his shares pre-eminent voting rights but, even so, observers said he would be unwilling to relinquish further control.

There were no further details yesterday on Revival's promise of a "partial share alternative" for those M&S investors who did not want to wave goodbye to any of the retail alchemy wrought by Mr Green. Spencer Summerfield, an equity lawyer at Travers Smith, said investors would probably force Mr Green to adopt the same partial-private structure that Morgan Stanley used when it acquired Canary Wharf. This involved a pledge to re-float part of the business on AIM so shareholders could share in any recovery. The alternative would be to allow investors to retain a stake in the delisted business. But this would be problematic. "The problem with an unlisted stock is that institutional shareholders find it very difficult to hold," Mr Summerfield said.

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