Green considers increasing offer after Arcadia rejects initial bid of £690m

Philip Green, the retail billionaire, was last night mulling whether to increase his offer for Arcadia after having his first approach last week firmly rejected by the board of the Top Shop to Dorothy Perkins chain.

It emerged this weekend that Mr Green made a surprise move on Arcadia last Tuesday. He offered 365p a share in cash or £690m, in conjunction with the Icelandic retailer Baugur, which has been stalking Arcadia for months.

Arcadia yesterday confirmed that it had rejected as too low the offer from a newly created offshore vehicle called Taveta Investments, which is controlled by Mr Green's family.

A spokesperson for Arcadia said: "The board of Arcadia has made their position on this proposal quite clear, so now it is up to Philip Green. Is he going to come up with an offer shareholders are happy with?"

Mr Green's camp stressed that 365p already represented a considerable premium to Arcadia's share price, especially when its large options package was factored in. It is angry that Arcadia's board rejected the offer out of hand and did not refer it to shareholders.

Mr Green said: "The options take the price to a premium of over 40 per cent from last Monday's close. This is a very considerable premium in uncertain times. It is cash and it is today."

But the veteran entrepreneur is privately preparing to increase the bid. First his adviser Merrill Lynch will speak to principal shareholders this week to gauge what an acceptable level might be.

Arcadia argues that because its share price went above £4 earlier this year, it is worth considerably more than the level Mr Green is offering.

One person close to the negotiations said: "We are well into the second year of recovery of this business and the price earnings ratio is below others in the sector."

Baugur, Iceland's largest retailer, has built a 20.1 per cent stake in Arcadia since January 2001. Jon Johannesson, the Icelandic entrepreneur behind Baugur, made an earlier attempt to acquire the whole group but talks collapsed in March.

If Mr Green and Baugur do secure Arcadia this time round, they are understood to want to divide up the spoils. Mr Green would retain Arcadia's Dorothy Perkins, Burton and Wallis brands, while Baugur would take control of Top Shop, Top Man and Miss Selfridge.

Separately, Terry Green, who used to run Bhs for Philip Green, was thought to be talking to Mothercare about becoming the retailer's new chief executive.

Mothercare said the process of selecting a replacement for Chris Martin, who departed in July, was "well underway" but would not comment on whether Terry Green was on the shortlist.