Philip Green Steps in to Save Baugur

Retail billionaire Sir Philip Green is poised to cement his position as king of the high street after staging a dramatic intervention to stave off the collapse of Icelandic retail investor Baugur.

Baugur's empire was understood to be on the brink of administration after Iceland's three largest banks, Kaupthing, Landsbanki and Glitnir, were taken into state hands. As a result many of Baugur's accounts were frozen; in turn, the banks were hawking the equity stakes they held to potential buyers in the Square Mile.

Advisers KPMG have had staff in Reykjavik and London desperately trying to come up with a solution to Baugur's position. Green could potentially control parts of Baugur's holdings in House of Fraser, as well as Mosaic Fashions, owner of the Karen Millen, Oasis and Warehouse chains.

Baugur employs 53,000 people and head office staff were said to be concerned about their future on Friday.

Green could invest up to £2bn into Baugur. It is thought he is prepared to buy up the retailers' debt held by the Icelandic banks. This would put him in a position to exert control over the teetering retail group. Kaupthing has stakes in Mosaic and Jane Norman while Glitnir has holdings in House of Fraser, Whistles and jewelery group Aurum, which owns Goldsmiths and Mappin & Webb.

If Green pulls off the eleventh hour intervention it would reunite him with his former Topshop brand director Jane Shepherdson, who quit two years ago amid acrimony and now runs Whistles, which is co-owned by Baugur.

This weekend Green flew to Iceland to hold talks with Baugur executive chairman Jon Asgeir Johannesson and chief executive Gunnar Sigurdsson.

Green faces competition for the debt as a major British bank is also in talks to buy Kaupthing's UK loan book. 'All roads lead back to Kaupthing,' said one senior industry banker. 'A number of discussions are taking place in respect to shareholders and the way in which capital might be organized going forward.'

Amid the effective meltdown of the Icelandic economy, Sigurdsson has tried to present a public veneer of calm, insisting it was business as usual. But with bank accounts frozen, Baugur is thought to have had no other option than to turn to a cash-rich backer like Green.

Insiders were keen to assert that Baugur's woes do not have an immediate impact on the businesses in which it invests. House of Fraser has said it is in a strong position and Mosaic said profits had risen in the first half of 2008.

Green, who already owns department store chain Bhs and Topshop group Arcadia, is one of the UK's richest men through shrewd financial engineering based on property values. Analysts question whether he would have this option in a serious downturn. Together the two businesses have sales of about £2.7bn.