Police raid in Iceland could jeopardise Philip Green's £800m bid for Arcadia

Philip Green's increased £800m bid for Arcadia, the fashion retailer, was thrown into doubt yesterday when it emerged that the Icelandic company which is supporting his bid had been raided by police and its chairman and chief executive accused of fraud.

The increased offer of 408p a share also met with a mixed reaction from shareholders. Standard Life, one of Arcadia's biggest investors, said the offer was "too low" and would have to be nearer 500p than 400p "before we even think about it". The shares rose 8 per cent to 370p on the news.

Baugur, the Icelandic company that owns a 20 per cent stake in Arcadia after its own failed bid for the UK retailer last year, said that officers from Iceland's financial crimes squad had searched the group's headquarters in Reykjavikon Wednesday evening.

The inquiry began after the chief executive of US wholesaler Nordica accused Baugur of having forged documents when the companies ended their business links. Baugur said Jon Johannesson, its chairman, had been accused of gaining money by illicit means by accepting forged bills issued by Nordica. The company said the allegations were false and that it was challenging the authorisation of the office search in the Supreme Court.

The head of Baugur's US operations was sacked last week, though it is not known if this was a related incident.

Philip Green admitted the raid could harm his bid. "It's either nothing, in which case we proceed. Or, if there is something in it, then the world has changed." Mr Green had hoped to sell Arcadia's young fashion chains, Miss Selfridge and Top Shop, to Baugur, to offset the cost of his bid. The company had also pledged to back his offer with its 20 per cent shareholding.

The development came as Mr Green raised his offer for Arcadia to 408p a share in cash, from 365p. This "final proposal" values the Arcadia equity at £770m, with another £30m to cover share options, including £25m that will be owed to Stuart Rose, Arcadia's chief executive. Mr Green said the debt finance from HBOS was not secured against any part of his Bhs stake.

Arcadia said it was considering its position and would make an announcement in due course.

Mr Green pointed out the bid represents a 53 per cent premium to the 267.5p at which Arcadia shares were trading prior to his first bid. It also represents a 41 per cent premium to the average Arcadia share price over the past 12 months. The offer is conditional on Arcadia recommending it, the financial arrangements being finalised and the Baugur deal being confirmed.

Investors were divided on the bid. Standard Life said it remained supportive of the management. But Andy Brough at Schroders, which has a 2.5 per cent stake, said: "408p seems a good price to me given that the shares were below £3 before Philip Green's approach."

Analysts were similarly divided. Rhys Williams, at Seymour Pierce said: "I think the board should recommend this offer. It's a fair-value price for the business and offers their shareholders a good premium."

But Nick Bubb at SG Securities was less positive. "It's getting closer but we still don't' think it's quite enough. We stick to our fair value level of 438p."

Arcadia's shares have soared from less than 50p in November 2000 when Mr Rose was appointed chief executive. He has improved the business by slimming the business down to six brands, reducing gearing and introducing more conservative buying. But the company says there is more to do and margins can be improved from the current 6 per cent to 10 per cent.

One leading retailer said. "I can see the attractions for Philip – breaking it (Arcadia) up like Sears. But I think 408p still leaves Stuart room to say 'no'."

Mr Green has amassed a huge personal fortune via the break-up of Sears and the buy-out of Bhs for £200m two years ago. He has since been involved with merger discussions with Woolworths.