Not so long ago it was the greatest talent house in the country, with a crack team of agents marshalling an unbeatable roster of internationally renowned authors and A-list actors.

They are nearly all gone now, from Nick Hornby and Tom Stoppard to Keira Knightley and Ricky Gervais, cleared out in a mass defection that convulsed the London literary and entertainment worlds last autumn.

It seemed then that the bitter struggle for the soul of Peters Fraser & Dunlop (PFD) would end with a whimper – a once-celebrated company limping into irrelevance – but yesterday there was an extraordinary new twist in the tale when Andrew Neil, the former Editor of The Sunday Times, agreed to pay £4 million for what many regard as little more than a husk.

Mr Neil’s consortium has offered a third of what CSS Stellar, a sports marketing firm, paid for PFD in 2001. More pertinently, their £4 million is the same sum that PFD’s agents offered CSS as their gambit in a proposed management buyout last year. Mr Neil declined to name his backers, although they are understood to be City financiers acting in a private capacity.

Founded in 1924 as A D Peters, the firm had enjoyed an unhappy six-year relationship with its parent company.

When CSS refused to countenance the idea of a buyout, 35 of PFD’s agents upped and left, preferring to set up a new agency at great personal expense than continue to work under CSS’s control. United Agents, the new firm, is now open for business on Shaftesbury Avenue. Not one of the agents was poached by another firm. All together, more than 70 former PFD staff now work there, but with 18 employment tribunals between the new staff and CSS still pending, no one at the offices wanted to discuss the new development yesterday.

However, one senior publishing industry figure said last night: “They are flabbergasted by what has happened. CSS could have received far more from its own agents last year and none of this business would have happened. And as for Andrew Neil, there had been rumours but still, it’s an enormous surprise.

“Everyone’s wondering what in heaven’s name he thinks he has bought and whether there is anything left in it.”

With the cream of its talent having jumped ship, the final blow to PFD’s prestige came in March when The Times disclosed that a rival agent, Andrew “The Jackal” Wylie, had snatched control of Evelyn Waugh’s literary estate, which had been with the firm for 80 years.

Yesterday Mr Neil said that he had been approached to bid for the agency by Caroline Michel, PFD’s chief executive, who was brought in last September just as the row between CSS and its agents burst into the open. Ms Michel will remain at the helm with a remit to develop the business while Mr Neil will handle the outstanding legal claims against United Agents, which he believes are overshadowing the true potential of the company. “There is quite a lot of money that we believe is owed to us,” he said.

“We’ve paid a very good price for a business with a great back-book, and Caroline is the best in the business. She’s got the right vision for a talent agency for this century.”

Profits at PFD nearly halved to £400,000 last year as the dispute unfolded, but the business generates about £3.6 million from rights to exploit its authors’ catalogue on sales that hit £9.4 million in 2007. CSS said that it would make a profit of £3.4 million on the sale, but would have to write off £3.6 million of goodwill.

Ms Michel said she hoped that the change of ownership would allow PFD, which still represents Twiggy, the former model, and Simon Schama, the historian, to rebuild: “We lost half our agents, but we now have a stable team and hope this will attract new clients.”

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