He's survived the bid. Now Rose must go head-to-head with Green on high street

Philip Green's parting shot after accepting defeat in the battle for Marks & Spencer was a chilling warning that he would be breathing down the necks of M&S management and would "trade their socks off". He added: "We'll see who's the better retailer".

Philip Green's parting shot after accepting defeat in the battle for Marks & Spencer was a chilling warning that he would be breathing down the necks of M&S management and would "trade their socks off". He added: "We'll see who's the better retailer".

The prospects of an epic price war between Mr Green's Bhs and Arcadia chains and an M&S trying to get back on its feet helped push the retailer's shares down 9 per cent in morning trading yesterday. The 400p share price that Stuart Rose, the new M&S chief executive, needs to achieve to confound his critics looked an even more difficult target.

Yet as the shares recovered, to finish just 5.2 per cent off, Mr Rose was in sanguine mood about Mr Green's threat and what it might mean for M&S. "He made some statement that was very Churchillian stuff. He's competitive. That's no different. We always have this kind of battle," Mr Rose said.

Having survived Mr Green's bid attempt, Mr Rose now faces the arguably much tougher assignment of having to go head-to-head with the Monaco-based entrepreneur on the British high street.

Yet look beneath words spoken in anger by the spurned Mr Green, and in the cold light of day a price war seems far from likely. Maureen Hinton, senior analyst at Verdict Research, said: "I don't think it would be a good idea. Bhs already trades on value but it's not as low a price as value retailers such as George at Asda or Primark. He [Green] has really stepped into the role left behind by C&A, a mass market chain store that appeals and very much looks like a chain store. I think that M&S is more definitely upmarket."

The key battleground between Mr Rose and Mr Green will be women's clothing. In 2003, according to Verdict Research, M&S had 13.5 per cent of the market against Arcadia's 10.4 per cent. The most recent M&S figures, however, suggest the gap is rather closer - no more than 1 per cent. "Our business is determined by womenswear," Mr Rose said. "I have to give women what they want in terms of fashion, style, quality and value."

According to Verdict Research, the only overlap with M&S's core customers is with Bhs, already targeting a mature customer. Mr Green also has Dorothy Perkins but this chain caters for customers with more modest spending habits than M&S customers. "It's really on the fringes of M&S competition," Ms Hinton said. Mr Green also owns Wallis and Evans, neither of which impinge much on the M&S customer base.

Within womenswear it is the 40s and over that will see the most intense competition. M&S has woken up to the fact that this is its core market and needs to refocus on it. Shareholder after shareholder at Wednesday's annual meeting stood up and reminded Mr Rose of this.

The rival chain Bon Marché is targeting this market successfully and on Wednesday Littlewoods, the chain owned by the Barclay Brothers, announced a major launch to attract the over 40s to their stores.

Mr Rose was not wasting any time yesterday in making sure his troops on the front line are ready for the fight. He was busy explaining this year's autumn and winter ranges to store managers at a west London conference, stiffening their resolve for the fight ahead.

So faced with Mr Green's Bhs and Arcadia chains ranged against him, how realistic are Mr Rose's chances of achieving 400p-a-share and more for his backers? Certainly shareholders were not slow in reminding Mr Rose of what they are now expecting. David Cumming, head of UK equities at Standard Life Investment Management who led the way in supporting Mr Rose against Mr Green, said yesterday: "Philip Green did Marks & Spencer shareholders a huge favour in providing the catalyst for management change. It is now up to Stuart Rose to deliver the recovery."

It is not just the City institutions that will be bringing pressure to bear. On Wednesday at the packed M&S annual meeting, Mr Rose was pressed by the 3,000-plus private shareholders attending to reveal when they would see some difference to the company's sales figures. Mr Rose, reluctant to be pinned down too much, did say, however, that he expected to see like-for-like sales growth at M&S in 2005-06.

The City is certainly expecting Mr Rose's retailing abilities to fire up the share price well beyond 400p. Richard Ratner, the retail analyst at Seymour Pierce who is close to Mr Green, reckons he will use his sourcing and merchandising skills to take on M&S.

So while shoppers may benefit from the renewed high street competition and M&S shareholders could see a higher share price, the one group that can certainly expect to feel the full heat of Mr Green's search for revenge will be the management teams at Bhs and Arcadia.

THE WAR OF WORDS

PHILIP GREEN ON M&S:

"They are going to have us breathing down their neck in every street and every shopping centre in the UK. Then we'll see who is the best retailer."

GOLDMAN SACHS, THE BANK THAT BACKED GREEN'S 400P-A-SHARE OFFER FOR M&S:

"We reach a fair value of 416p per share."

MAUREEN HINTON, VERDICT RESEARCH ANALYST, ON BHS VERSUS M&S:

"He [Green] has really stepped into the role left behind by C&A, a mass market chain store that appeals and very much looks like a chain store. I think that M&S is definitely more upmarket."

RICHARD RATNER, SEYMOUR PIERCE ANALYST, ON THE AFTERMATH OF GREEN'S BID:

"He ought to put in a £10m bill into M&S for sorting out its management."

M&S worth more than Green's bid, says Goldman Sachs

Philip Green's decision to drop his £9.1bn bid plans for Marks & Spencer resulted in a furious day's trading in the retailer's shares yesterday.

Much of Mr Green's support had come from short-term traders who bought an interest in the direction that the M&S share price was likely to travel, using derivatives known as contracts for differences.

After his bid plans flopped, there was a rush to hedge and unwind these positions resulting in 252 million M&S shares changing hands. The huge number was equal to 11 per cent of the company's share capital.

M&S shares ended the day just 5.2 per cent down at 345p. The fall was not as great as many had feared with the market factoring in the impact of Stuart Rose, the new M&S chief executive, who on Monday set out his strategic plan for the company.

As a result analysts have been busy crunching their numbers and coming up with new, fair-value targets for where they think the M&S share price will get to in the next two to three years. Most prominent of those was the opinion of the Goldman Sachs retail analyst Richard Chamberlain. Goldman Sachs is the investment bank that heavily backed Mr Green's £9.1bn bid plan with equity and debt.

As an adviser and backer of the Green camp, it was barred from publishing analysts' research notes during the 33 working days of Mr Green's assault on the business.

Free of any such restrictions, Mr Chamberlain yesterday published his opinion on what M&S was really worth. His conclusion was that its fair value was 416p, comfortably ahead of Mr Green's 400p which the M&S board consistently said had undervalued the store chain.

Mr Chamberlain's view is double-edged, however. At more than 400p it appears to vindicate the M&S view but suggests that Mr Green was only 4 per cent off a price that might have swung even more shareholders behind him.

Mr Chamberlain's 416p estimate also takes into account the effects of a possible price war being launched by Mr Green.

Mr Chamberlain said: "Our new estimates incorporate all of the proposed operating cost savings of £65m for the full year of 2006 and £95m for the full year 2007.

"However, at the gross margin level we have factored in all the supply chain savings of £15m and £35m for 2006 and 2007 respectively, but only half the remaining gross margin savings of £170m in 2006 and £190m in 2007 as we assume that the other half will have to be passed on to the consumer in the former of lower prices. Philip Green has signalled a more competitive retail environment and we were already concerned about the possible impact of renewed apparel price deflation next year."