The battle for control of Hamleys broke into the open yesterday when the bookselling entrepreneur Tim Waterstone trumped a rival offer for the toy retailer from the Icelandic group Baugur.
Mr Waterstone's offer, which does not yet have the recommendation of the Hamleys board, is pitched at 230p a share, valuing the 200-year-old retailer at £53.1m. The price puts him ahead of Baugur, which just hours earlier had raised its bid to 226p a share, or £52m.
Hamleys shares soared 23.5p to 232p as the market sensed a battle in toyland. Mr Waterstone wants to put Hamleys together with his Daisy & Tom children's products stores, which currently have five branches. Baugur is seeking its first UK acquisition after building up stakes in UK retailers such as Big Food Group, House of Fraser, Somerfield and JJB Sports.
Mr Waterstone said: "Hamleys is a fantastic brand, and we believe the acquisition ... will provide a number of synergies with the Daisy & Tom business, assisting Hamleys to continue to grow and prosper. They are two symmetrical brands."
He is being advised by ING and backed by Rhone Capital, a private-equity business which specialises in smaller deals up to £300m. Baugur said it was considering its position with its advisers, KPMG.
Hamleys noted Mr Waterstone's offer and said its independent directors would meet soon to consider a response. Simon Burke, Hamleys chairman, said: "We now have two people slugging it out for the company, which is fantastic for shareholders."
Richard Ratner, a retail analyst at Seymour Pierce, expressed disbelief at the level of the bids. "It should never have gone this high," he said. "It is difficult to see how anyone will get a satisfactory return on their investment."
The Waterstone bid came after a "night of cut and thrust" during which both bidders were trying to put fresh bids together. Baugur broke cover first, raising its bid to 226p a share, valuing Hamleys at £52.2m in an attempt to deliver a knock-out blow to Mr Waterstone. This was an improvement of Baugur's previous offer of 205p a share. But by mid-afternoon Mr Waterstone beat the improved Baugur terms.
Baugur said it had raised its offer in order to ensure a swift resolution to the takeover bid. "We are determined that a prolonged period of uncertainty over the future ownership of Hamleys would undermine the operational performance of the business," it said.
Hamleys' finance director Ian Packer and its chief operating officer John Watkinson are working with the Baugur bid. The management structure is less clear under the Waterstone offer. "I would probably be chairman but let's go unconditional first and we'll get to that later," Mr Waterstone said.
Mr Waterstone created the Waterstone's book chain in 1982 before selling the business to WH Smith. When Waterstone's was spun out into the HMV Group, the book-loving entrepreneur tried unsuccessfully to buy his former company back.
His Daisy & Tom chain plans to open another three stores this year. His statement yesterday said the group recorded sales £9.8m last year though no profit or loss figure was included.
Hamleys is best known for its flagship site on London's Regent Street though it also has three smaller stores in airports and 35 Bear Factory stores.