Retail Rat Pack

Raw and pugnacious, they do deals together and party together. Who are they?

by Chris Blackhurst
Last Updated: 09 Oct 2013

Raw and pugnacious, they do deals together and party together. Who are they? They're the new kings of the stores and, with a network of maverick backers to call on, they cruise the high street targeting takeover opportunities.

It is a game that the City and financial journalists increasingly love to play. A retail group is in trouble, it may be up for sale. Who will buy it? Will it be Tom or Philip or Terry or Stuart or Allan, or will it be two or three of them together? And if they do make a bid, will the others pair off and make their own offer?

Once, the British high street was the preserve of family firms run by expensively educated sons who wouldn't dream for a second of selling up.

They used the same banks their fathers and, before them, their grandfathers had always used; consulted the same advisers; visited the same gentlemen's clubs. And nothing moved.

Not any more. These days, the kings of the stores are an altogether different breed. Young, confident, rich, they treat the shopping mall as a lion does the Serengeti, as a fertile hunting ground for easy meat.

They stalk the FTSE register, searching for companies in play.

Allders isn't in great shape, Terry Green and Tom Hunter square up to buy. Debenhams is up for grabs, Stuart Rose steps up to the plate. Safeway is on the block, Philip Green, advised by Allan Leighton, may make a move.

They all know each other, they are all friends and their circle takes in the same backers and supporters. So when they want a deal putting together, they turn to Peter Cummings of HBOS or to Robin Saunders, formerly of WestLB and now looking around to set up her own funding vehicle, or Bob Wiggley of Merrill Lynch. If there's a property element to the deal - and there usually is - the chances are they will rope in major multimillionaire dealers such as the Tchenguiz brothers, Robert and Vincent, or the Reubens, David and Simon, to lend their expertise.

All the components came together last year in a classic deal involving Hunter, the Scottish entrepreneur who made a fortune from selling Sports Division, the retailer, to JJB Sports. Hunter is close to Ian Grabiner, chief executive of Philip Green's Arcadia group; Hunter and Grabiner worked together at Sports Division; Hunter and Philip Green are friends; Green introduces Hunter to the Reuben brothers; they consider bidding for Selfridges; when that gets nowhere, the Reubens join with Hunter in purchasing a £310 million equity property portfolio; the banker on the purchase is Cummings of HBOS, who put together the financing for Philip Green to buy BHS and Arcadia, and was prepared to assist Robert Tchenguiz in his own bid for Selfridges.

Confused? There's more: Leighton chairs BHS; Terry Green used to be number two at BHS to Philip Green (no relation); Hunter owns 5% of BHS through his West Coast Capital private equity fund; Rose, a good friend of Terry Green, sold Arcadia to Philip Green... So it goes on. The connections are too numerous to list, but they form the image of an all-conquering Retail Rat Pack - a group of mates who do deals together, make an awful lot of money together, and party together.

These aren't greyhairs biding their time for a crack at the top job, salarymen happy to serve, then to be served. They're adventure capitalists, retail entrepren- eurs, risk-takers, dealmakers - call them what you will. They're also referred to as FOPs (Friends of Philip) or GGs (Green's Groupies) or the Monaco Mob - in tribute to their major influence and inspiration, who showed them the way by making £1 billion from BHS, then topped it by making a second billion (in just a year) from the transformation of Arcadia, owner of the Top Shop, Wallis, Dorothy Perkins and Burton labels.

The group revolves around Philip Green. Loud, gregarious, pugnacious, Green is no respecter of history and past reputations. He is a nonstop whirlwind of activity whose ambition knows no bounds. Indeed, it was two moves of his that set the standard for the others, that showed them what, with a huge dose of chutzpah, was possible. His audacious purchase and dismantling of Sears, followed by the startling offer in 1999 for the mighty Marks & Spencer, sent the City and the retail established order into shock.

It wasn't so much that anyone was prepared to mount an assault on M&S, it was more the manner of the attack. Green came from nowhere - a retailer whose best days appeared to be behind him, who seemed destined never to recover from being forced to quit a previous company, Amber Day, by his City shareholders. He was an outsider who was thrown out and his treatment rankles still.

That psychological distance from the City - at least, from the more blue-blooded end - is something that all the Rat Pack share. They prefer to deal with bankers on the fringe, those who do not have long-standing relationships with one of their targets and who are prepared to explore unconventional ways of financing their deals.

Although Green failed in his tilt at M&S, a marker was put down. The whole retail sector was thrown into disarray. M&S was a tired, fat organisation that, in truth, deserved to be stripped down and shaken up. But it wasn't alone. Storehouse (owner of BHS), House of Fraser, Woolworths, Debenhams, Arcadia, Safeway, Sainsbury... indeed, just about any retailer in Britain was prone to attack. Many of them still are, prompting endless intrigue and speculation.

We may be a nation of shopkeepers, but the Rat Pack has realised that we don't manage our shops very well. The managements of retail chains tend to be bloated and complacent, racking up costs and passing them on to the customer. The Rat Pack strategy always follows the same simple principles: strip out the overheads; squeeze suppliers for better terms; constantly bring in new products. Underperforming branches must be closed and sold, while the better ones are kept and made to sweat.

The sooner they get stuck in, the sooner they can start to pay off the debt they invariably take on to make the bid in the first place. This is the way they work: using their own and each other's money, and, adding to this 'deposit', cash raised from borrowing rather than issuing shares (it helps that interest rates are so low). They prefer debt to equity, private companies to public ones, freedom to operate to Stock Exchange red tape and constant scrutiny by analysts.

In a remark that would be in the frontispiece to the Rat Pack Handbook if there was one, Philip Green once said: 'The fundamental difference between me and all those tossers running public companies is that I invest my own money.' The Rat Pack creed makes for hands-on management. They check their ranges, visit their stores themselves and, most importantly, keep a close eye on all the payments.

The Rat Pack may engage in deals and financial manoeuvres almost purposely designed to raise eyebrows in the more staid boardrooms, and they put in the hours, observing the maxim that 'retail is in the detail', but it isn't all work, though. Their carousing also sets them apart. Their idea of a party isn't standing around in a swanky room in the City with a few trays of canapes and glasses of fizz or red or white; it's a full-on affair with no expense spared.

So when Saunders turned 40, she held a three-day joint celebration for her birthday, wedding anniversary and children's baptism in Tuscany, telling guests to wear something medieval. Similarly, when Green reached 50, he flew 200 friends, including Rose, Hunter, Leighton and Saunders, to Cyprus on a specially chartered and decorated jet to a luxury hotel, where they were entertained by Rod Stewart, Demis Roussos and Tom Jones. The whole event - where the guests wore togas and Green went as Nero - was video'd and they had PG - the Movie played back to them at a follow-up party in Monaco.

Wealthy institutions and wealthy people have always indulged in conspicuous con- sumption (of course they have), but there's something about the Rat Pack idea of entertainment that makes them different. In an age that rejected the 'Greed is good' culture espoused by Gordon Gekko in the '80s film Wall Street, they seem to be turning the clock back, to be thrusting two-fingered defiance in the direction of the increasingly cautious, PC and governance-obsessed City and corporate Britain.

They're rebels who prefer not to wear ties, who wear designer stubble and shave their heads. They hang out with pop and showbusiness stars instead of City grandees. Their playgrounds are marinas in Monaco and St Tropez rather than golf courses in Surrey. They have villas in the sun, not grouse moors in Scotland. Their wives display their jewellery and their cleavages.

On their own, these things seem trivial, but together they amount to a revolution. There is little in the business orthodoxy the Rat Pack isn't challenging and more often than not, rejecting. From their choice of friends, their selection of targets, their techniques for funding, their management style to their socialising, they are doing everything - to adapt a song made famous by the leading light of the original Hollywood Rat Pack - Their Way.

A few years ago, if asked to say which had a future, tried and tested formulae practised by figures of 'sound' education and good grounding, or members of the new wave of chancers, the former would win every time. Not now. Suddenly, the latter, with their determination and energy, their unfazed zeal, look a safer bet. The British high street needed overhauling. It's taken a group of Friends to do it - and they're not finished yet.

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