The auction for the fashion retailer New Look descended into acrimony on Tuesday amid claims and counter-claims over the precise nature of Goldman Sachs’ interest in buying the business.

Stung by days of rumours that it was about to enter the bidding for the chain, Goldman Sachs took the unusual step on Tuesday of issuing a public denial of interest in the retailer.

Executives at Goldman were privately furious at what they believed was an attempt by Merrill Lynch, which is handling to sale, to stir up interest from an unimpressed City.

New Look has been valued by its owners Apax and Permira at up to £2bn, but only two bidders have so far entered the race and both are offering less than the asking price.

Warburg Pincus, which has teamed with TPG Capital, and BC Partners are both understood to have bid between £1.6bn and £1.8bn.

However, by Tuesday afternoon Goldman’s protestations of disinterest were looking threadbare, after the Financial Times learnt that the investment bank had attempted to put together a consortium to buy the retailer three weeks earlier.

Goldman made its move within days of failing to secure the mandate to sell the company from New Look’s owners, Apax and Permira. The bank had assembled a team comprising Tom Singh, the founder of New Look, Landmark International, the group’s Middle East franchise partner, and a group of hedge funds. However, it insisted that Merrill give it exclusivity and stop the auction.

Merrill rebuffed the approach, insisting that Goldman take part in the formal auction with other competing parties. Goldman then walked away and has evinced no further interest in the deal.

The relatively limited interest in New Look, combined with Goldman’s denial, is an embarrassment for Merrill, which is already facing criticism for its handling of another retail sale. Sports Direct International, whose float was managed by Merrill, lost almost a third of its value just three months after being listed on the stock exchange.

On Monday, Sports Direct’s shares slumped to a new low of 190¾p after it emerged that Mr Ashley had settled a dispute with Merrill over a £200,000 legal bill with a game of “spoof”.

Mr Ashley, who is deputy chairman and majority shareholder of Sports Direct, played the coin game against Simon Mackenzie-Smith, head of UK investment banking at Merrill Lynch, which took the company to market. Mr Ashley lost.

Merrill is also one of the four banks that brought Debenhams back to market less than three years after it was bought by private equity.

Although the investment banks are not responsible for the company’s performance or share price a year after floating it, the Debenhams link has dogged them.

If New Look is not satisfied with the bids, it will refinance the company.

The bank insists that the process is still on track and will give the bidders full access to management, due diligence and store tours over the next few weeks in an effort to close the deal.

Apax and Permira, which took New Look private for £699m in 2004, decided in March to conduct a secondary buy-out of the retailer.

If the company sells for £2bn, Apax and Permira, which own 66 per cent of the business, will have each doubled their £150m investments by two refinancings and may make up to £1.3bn between them.

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