If Philip Green wins then welcome to the new all singing, all swearing St Michael

Marks & Spencer won't be the same again should the colourful entrepreneur succeed with his bid. But while some may object to his abrasive style, the City may relish a retailer running the shop. Jason Nissé, Abigail Townsend and Clayton Hirst report

It's retail déjà vu. Marks & Spencer is in trouble. It is looking for a new chairman. And Philip Green is considering making a bid.

It could be December 1999 all over again. Then, the ailing St Michael was suffering from falling sales - just as now - and was without a chairman - just as now. Green said that he might or might not make a bid - just as now. As it happened, he didn't.

The foul-mouthed tycoon - who famously left his public school without any O-levels and worked with his mother running his father's property business after his father had died - has rehabilitated himself following a nasty brush with the City in the early 1990s.

When he made his M&S approach last time, it followed a couple of good deals. First he had helped the Scottish entrepreneur Tom Hunter buy Olympus Sports. Then, with help from his friends, the Barclay brothers, he had bought the rump of what was once the mighty Sears retail empire for a knock- down £550m. He had refinanced the business, sold off chains such as Miss Selfridge and Wallis to Arcadia, and ended up with not only a profit but more than £100m worth of properties.

Anyone who has come across Green has an opinion of him. His sarcastic, invective-strewn approach is not without its charm, but his humour can be cruel. He once fired someone by saying: "You're the weakest link. Goodbye."

He first came to prominence when he bought the Jean Jeanie chain in 1985 and sold it for a near-£3m profit five months on. Three years later he bought into Amber Day, a quoted fashion retailer, which he used as a vehicle to buy the discount chain WhatEveryone-Wants. Four years of rows, resignations and profit warnings ended with his resignation, and a £1.13m payoff. Wealthy but bitter, Green vowed never to return to the public arena.

In 1999 M&S was only just emerging from the autocratic rule of Sir Richard Greenbury. The rather less than dynamic Peter Salsbury was now chief executive and, in the words of one City analyst, was going round the company spreading inertia. M&S was looking for a new chairman. It was being attacked for dropping British suppliers. Its ranges were dowdy and sales were poor. It December 1999, speculation started mounting of a bid for M&S. The shares started twitching and all the talk was of Tesco making a move. But it was Green who declared his hand, saying that he had backing from a slew of City firms - from German bank WestLB to US boutique DLJ - for an offer. Rumours circulated of a dream management team, including ex-Asda boss Allan Leighton, former Debenhams chief Terry Green and Bass finance director Richard North.

A phoney war ensued. Green, as he is adept at doing, said just enough to make people believe a bid was imminent, but not enough to force the Takeover Panel to declare that a bid existed and M&S was in an "offer period". M&S created a war cabinet of its advisers - Morgan Stanley, Cazenove and PR firm Brunswick. It allegedly came up with "Project Mushroom", gaining information to discredit Green.

One story unearthed was that Green's wife Christina had bought 9.5 million shares in M&S just before her husband declared his intention to bid. Although, as part of a concert party making the offer, there could be no question of insider dealing, the bad publicity knocked the Green bandwagon sideways.

However, the killer blow was M&S's recruitment of Luc Vandevelde as its new chairman. The shareholders were keen to give him time to turn the retailer around.

In February 2000 Green withdrew, complaining of "old boys' clubs" and City bias, and saying a bid would have caused a "lot of aggravation and taken a lot of time".

Did he go into his shell? Not a bit of it. He paid £200m for British Home Stores, which was being sold by the ailing Storehouse group. He stripped out costs, refinanced using Bhs's property, and was well positioned to benefit from the withdrawal of Dutch group C&A from the UK. The most recent figures, for the year to March 2003, show it making £102m of profits from £800m of sales. It is now estimated that the group, which is 94 per cent controlled by Green, is worth more than £1bn.

In September 2002, following a wave of publicity about the success of Bhs, he paid £850m for Arcadia, the owner of Top Shop, Dorothy Perkins and Burton. The Bhs formula was repeated. The accounts of Taveta Investments, the vehicle used by Green for the Arcadia deal, show it made £160m of profits on sales of £1.62bn in the year to last August - a 60 per cent increase in profit on a 20 per cent fall in sales, most of which was due to selling brands and businesses that Green didn't want. On this basis, Arcadia could now be worth more than £2bn.

Much of this turnaround is thanks to Green's undoubted skills in sourcing goods cheaply - something M&S has struggled with, partially because of its traditional reliance on UK manufacturers. Simon Burke, the former head of Hamleys toy store, who is now fronting a bid backed by Permira for WH Smith, says: "Philip Green has a significant advantage because he has a fantastic supply chain. That is how he makes his money. If he won M&S then he would be able to put five percentage points on its margins within six months."

Despite the figures, some industry sources remain unconvinced about the trading strengths of Arcadia and Bhs. Says one: "I don't think either of them is doing particularly well. Certainly Top Shop is - it's continuing to have a great run. But Top Shop is just a small part of Arcadia and I don't think the other bits are doing that well.

"Bhs is stuck in the middle," the source adds. "It sits in between the value end of the market and the mainstream end and it's vulnerable to both. That's not to say Bhs isn't a well-run business, because it is, but his focus is very much on driving the bottom line, not the top line. The clothing market is also very tough and much tougher than government figures suggest."

In the past, Green has vigorously defended the performance of both businesses, and surprised many by not announcing Christmas sales figures a few months ago. However, the source says he may now need to play down sales - and therefore market share - to prevent the competition authorities taking too close an interest. "They would want to have a very close look at his business and I don't think he would like that all."

There also remains an issue that Bhs competes directly with M&S, particularly at the bottom end of the market. But, says the source, Green seems adamant that he will, eventually, control M&S - no matter how tough the task of turning round the retailer might be. "He's got to really want to do it but he has a great ambition to own M&S. Something else that will spur him on is that, overnight, he would able to strip vast amounts of money out of the business. It's on a completely different scale to what he's got at the moment."

The other big doubt concerns how Green can operate in a public company. He has said part of the bid will be in shares, listed on the London Stock Exchange. But his time at Amber Day ended in such acrimony that the Department of Trade and Industry was asked to investigate. The DTI never confirmed its probe and no action ended up being taken against Green or anyone else involved in Amber Day.

However, a person who was close to Amber Day at the time says he cannot believe Green could be involved in a quoted company again. "He describes himself as 'the governor'. He does not feel he should be reporting to anyone. There are no such things as board meetings."

He adds: "I don't know how shareholders can hold him accountable. He is impossible. He reacts with some very short Anglo-Saxon words. If anyone else is going to be chairman, they are in it for the money and the ride."

Despite this, Green has many fans. One senior insider is confident that investors would back an M&S bid. "If they don't think he can make a difference to what's happening there, they are mad. M&S needs a retailer running it. It's a business that's not performing and here's a guy who knows how to do it.

"My sense is that the support is huge. One of the reasons the bid is being done in this way is that there's been a huge change in institutional thinking.

"There is nothing that Philip Green would do, or his advisers would allow him to do, that wasn't absolutely in tune with the moment. Retailers are always good investments and people want to play a part in that. It's about equity, not just private equity."

Mr Burke agrees: "Shareholders have spent years talking down M&S; they would be foolish not to support him."

A bid is expected this week although it is understood that last Thursday's announcement, prompted by a rise in the share price, was made earlier than Green had intended. After last year's phoney war when he said he might bid for Safeway and never did, and the unsuccessful stalking of M&S four years ago, the City wants to see the colour of Green's money. They might even accept it.

M&S: the 'destination shop' that lost its sense of direction

As the City was gearing up for a lazy Bank Holiday weekend on Thursday, a curveball was thrown in the ominous shape of Philip Green. The "no-nonsense" billionaire revealed he was mulling a bid for Marks & Spencer, four years after he had last stalked the ailing retailer, and shares in the group stormed ahead.

Officially, M&S said it was aware of Green's interest and had nothing more to add. Yet behind closed doors at the Baker Street HQ, the news was going down surprisingly well in some quarters. "Some managers reacted with glee," says one well-placed source. "The news gave them a lift. They took the view that Philip Green may be, how shall we say, abrasive, but at least he would give some direction to the business."

M&S's recovery has faltered. Christmas trading was dire, the £4m Lifestore concept is rumoured to be missing targets, growth in food sales is faltering and chairman Luc Vandevelde - not so long ago the hero of the hour - recently shouldered the blame and agreed to step down.

Yet when Vandevelde gave up being chief executive in 2002, recruiting Roger Holmes from Kingfisher, he appeared to be handing over a steady ship. He had ripped out costs, slashed debt, sold off or closed overseas operations to re-focus on core strengths at home, and bought in new ranges and designers. The result was to reverse years of sliding sales and profits. The City lapped it up and shares in M&S enjoyed a renaissance.

Since then, something has gone wrong. And despite Vandevelde's imminent departure, some believe it is in fact Holmes' style of leadership that is largely responsible.

"Roger Holmes makes decisions by committee," says a senior source who once worked at the company. "He won't make his mind up until he has read at least one report."

Rather than getting stuck in, Holmes is said to have adopted a management consultancy approach. In the first few months after his arrival, he is reported to have shadowed senior managers. At the end of each day, he asked them to score his performance out of 10. He is said to have usually received a seven or eight. "Staff didn't want to come across as a sycophant and give him top marks, but also didn't want to give him low marks and risk losing their jobs," says the source.

As a result of the flat management and laborious decision making, M&S's buying department is sometimes not given clear enough signals, according to the insider. "The buying group needs clear direction - targets on quality or price. They are given too many mixed messages."

Which goes some way to explaining the problems besetting womens- wear. Under Vandevelde, Next founder George Davies gave M&S the Per Una range, initially a raging success. The group has recently expanded the line to include the teen offering Dué, but some are sceptical about whether this is the right direction for the retailer. As one shareholder, in his capacity as a father, notes: "I just can't see my daughter buying stuff at Marks & Spencer and wearing it to school."

Childrenswear, meanwhile, has failed to make any headway, despite high-profile sponsorship deals with the likes of David Beckham, as the supermarkets and their cheap and cheerful ranges continue to bite at M&S's heels.

Leadership of clothing is unsettled. Earlier this month, Kate Bos-tock was hired from Asda to replace Steve Langdon as head of womenswear, but she does not join until the autumn. Meanwhile, rumours about how long creative director Yasmin Yusuf will be with the company, particularly after Bostock comes on board, refuse to go away.

Former Selfridges boss Vittorio Radice was brought in to revamp homewares but his remit has since expanded to include the whole retail estate. Most recently, he was asked to cast a fresh eye over all ranges accept food. In the boardroom, a replacement for Vandevelde has yet to be secured, and some directors are thought to be concerned about how tough a process this could be.

Of course, should Green get his way, he will install his own team of senior managers, including himself as chief executive. As one of his advisers points out - in what could be construed as a sideswipe at Holmes - M&S needs a retailer running it. Stuart Rose, the former Arcadia boss whose name has been linked with the chairmanship vacancy, has no role in the new line-up.

Yet even with Green's reputation - good or bad, depending on your viewpoint - reviving M&S is an uphill task. Says Paul Mumford, senior fund manager at Cavendish Asset Management, which holds a small stake in M&S: "The attraction is fairly difficult to fathom. I'm not sure either how he would turn it round. It's much easier say for Woolworths to re-invent itself than Marks because there are so many other retailers in its market. But obviously he feels that he can."

One of the biggest problems, however, is something even the ubiquitous Green has yet to turn his attention to. Food sales at M&S, once the engine for its growth, are spluttering: last week, a lacklustre 1.6 per cent rise in underlying sales was announced. M&S has been trounced by Waitrose and upmarket ranges from other chains - something that would have been unthinkable a few years ago.

Richard Hull, head of retail at consultancy Capgemini, says: "M&S was once a destination shop for food. Its food had a major quality advantage over its rivals' products. But M&S become overawed by increasing margin and, as a result, consistency has declined. Customers have noticed."

That Green wants M&S is not in doubt. Unperturbed by a "dirty tricks" campaign used last time by M&S, he is back in the fray with financing of around £10bn in his back pocket. Those who know Green say it is not surprising that he never gave up his cherished hopes to land M&S. And with the retailer stuck in its current mire, neither should it be surprising that he has judged the time right to try again.

WHERE'S HE GOING TO FIND THE MONEY?

So how is he going to do it? Before Philip Green admitted he was considering a bid for Marks & Spencer, the retailer's share price was languishing at around 280p. It closed at 359.5p at the end of the week, valuing the group at £8.1bn.

Shareholders were saying on Friday that they would not sell out for anything less than 380p a share, which values M&S at an eye-popping £8.6bn. Some might hold out for 400p.

Assuming Green will end up having to pay nearly £9bn for the business, how is he going to finance it? He says he has a trio of top-flight banks ready to lend money for the bid: HBOS, which backed him on Bhs and Arcadia; Royal Bank of Scotland; and Barclays Capital. In addition, his two merchant banking advisers, Goldman Sachs and Merrill Lynch, are willing to provide equity for the deal.

Green's modus operandi has been to "securitise" as much as he can to raise cash quickly once the deal is done. M&S's accounts show it has £2.5bn of freehold property, almost all in the form of the stores it trades from. Property experts claim this could be an undervaluation and M&S may have as much as £3bn of property that Green could either use as security for loans or turn into cash through a sale and leaseback.

Then there is M&S's financial operation, which has a large store card and burgeoning credit card business. Green might sell this, though he is more likely to borrow against the security of future cash flows, bringing in at least £1bn.

Of the remaining £5bn, Green has said he will raise some through a stock market listing. He has ruled out bringing M&S, Bhs and Arcadia into one company, which could be a problem. "If you don't combine them then you have the bizarre situation of Green's private company competing with his public company," says one analyst.

Green has one other difficulty completing the bid, however high his offer. Small shareholders. Some 20.3 per cent of M&S is owned by 311,477 private investors, who are notoriously bad at accepting offers, be it because of apathy, incompetence or bloody- mindedness. Green cannot complete the bid unless he has more than 90 per cent of the shares.