LONDON REPORT: Philip Green's cash and shares offer for Marks & Spencer disappointed the London equity market. It was lower than expected and involved too many imponderables.

Shares in M&S fell 2.7 per cent to 356p, with more than 114 million traded, as the struggling retailer's board rejected the bid on the grounds the potential £9 billion offer "significantly undervalues" the struggling retailer.

Expected to offer 400p, Mr Green made an offer of 290p-310p a share in cash, plus a 25 per cent stake in a new holding company that is difficult to value.

"The big issue is how much the paper [the stub equity\] will be worth and it's far too early in the process to know. Also the idea of being locked into an AIM-listed vehicle doesn't fill people with enthusiasm," Baird analyst Paul Smiddy said.

The uncertainty of the value of the 25 per cent equity stake in Revival Acquisitions, the company formed to make the bid, left analysts including Investec's Matthew McEachran valuing the offer as low as 325p.

Iain McDonald of Numis Securities estimated Mr Green's bid was worth 380p-400p, including the equity portion. "It's a sensible first shot across the bows, but its most probably not enough to get it." But Revival Acquisitions left the market guessing whether Mr Green would return with a higher offer.

Other possible retail bid candidates struggled as the high hopes for Mr Green's M&S offer faded. Matalan fell 1.6 per cent to 194p while Woolworths rose 0.6 per cent to 44¼p.

The FTSE 100 closed up 0.3 per cent at 4,435.4, with the mid-cap FTSE 250 marginally lower at 6,044.9. Share trading volume was 2.8 billion.

The crude price traded below the $40 level even though OPEC delivered a lower-than-expected increase in daily crude output. BP added 0.3 per cent to 489p, BG Group put on 1.8 per cent to 349p and Shell rose 0.3 per cent to 397p.

Centrica added 3.1 per cent to 218p on news of organisational changes for the gas distribution company that are expected to deliver £90 million of cost savings in 2005.

Elsewhere in the retail sector, Big Food Group, the owner of Iceland, rose 5.2 per cent to 106¼p on speculation that it may be taken over. Sources close to the company were sceptical of talk of a bid of about 130p and stressed the company had received no approach.

Kingfisher, the home-improvement retailer, gained 0.3 per cent to 289p after posting better-than-expected first-quarter results.