Outlook: Final denouement in battle for Canary Wharf

Stock markets; Leeds/Leighton; Daily Telegraph
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The Independent Online

The battle for control of Canary Wharf, now nearly nine months old, seems to be reaching its final denouement. With a little help from the veteran property developer, John Ritblat, Morgan Stanley has managed to raise its private equity bid to 292p a share, or £1.7bn in total, trumping a 275p a share offer from the Canadian conglomerate Brascan. With luck, the new offer should satisfy the American fund manager Franklin with 6.8 per cent of the stock, and the log jam in this convoluted saga should finally shift.

The battle for control of Canary Wharf, now nearly nine months old, seems to be reaching its final denouement. With a little help from the veteran property developer, John Ritblat, Morgan Stanley has managed to raise its private equity bid to 292p a share, or £1.7bn in total, trumping a 275p a share offer from the Canadian conglomerate Brascan. With luck, the new offer should satisfy the American fund manager Franklin with 6.8 per cent of the stock, and the log jam in this convoluted saga should finally shift.

Mr Ritblat's help comes in two forms. The chairman of British Land is putting up £125m for a 14.5 per cent stake in Silvestor, the bidding vehicle. More importantly, he'll be subscribing £160m for a 50 per cent share of Canary Wharf's retailing and car parking space. In the twilight of his years at British Land, Mr Ritblat seems to have lost none of his appetite for deal making. On the will he won't he finally give up the helm of the property company he's led for the past 34 years, Mr Ritblat continues to play his cards close to his chest.

Hounded by activist investors, Mr Ritblat last year agreed to split the roles of chairman and chief executive, but he also wants his son, Nick, who has been in the business for some years now and has more than proved himself as a chip off the old block, to step into his shoes as chief executive. The City was forced to accept the father and son team of Rupert and James Murdoch as chairman and chief executive of BSkyB. Most big fund managers are determined it won't be repeated at British Land.

So will Mr Ritblat senior give up the chairmanship too, so that his son can become chief executive, or will he opt for an outsider so as to remain chairman, leaving his son to wait a few more years before be inherits the earth? Mr Ritblat is keeping everyone guessing until the last moment. British Land without John Ritblat is almost impossible to imagine. His dramatic intervention in the battle for Canary Wharf shows that there's fire in the belly yet, and that Mr Ritblat senior will one way or another be staying looks the way to bet.

As for Canary Wharf, it seems to be all over, but there's room for upset yet. The offer is by way of scheme of arrangement, which means Morgan Stanley needs 75 per cent of shareholders or more to vote in favour. Franklin, Brascan and Canary Wharf's former chairman, Paul Reichmann, together have some 28 per cent of the stock, enough to block the bid should they chose. We'll see.

Stock markets

Wall Street investment bankers call it "reaching for yield". The term refers to the tendency among investors as the good times roll to become ever more oblivious to risk until eventually they'll buy any old rubbish in their hunt for a bargain that will produce a decent return.

There has been a lot of that going on in the year that has elapsed since equity markets hit rock bottom. Nobody would describe the past twelve months as exactly boom times for business and commerce, but what the world economy has lacked in buoyancy it has more than made up for in excess liquidity. In an effort to stave off recession, central bankers around the world have flooded the system with cheap money. Equity, bond, and property markets have soared to the extent that there are now very obviously bubbles in many of them.

Most stock markets around the world are trading at record highs once the bubble sectors of the last boom - technology, media and telecommunications - are stripped out. Meanwhile, the IPO market has returned to near boom conditions. Bond markets are also close to their all time highs, from top of the range US Treasury bonds to the much more high risk investments of the corporate and emerging market bond markets. Investors' renewed appetite for risk appears to know no bounds. Until the last couple of weeks that is.

The terrorist atrocities in Madrid and recent data showing that the US jobs market is refusing to respond to the Federal Reserve's monetary therapy have revived fears of a double dip recession. Equities have been responding accordingly. My own view is that a second leg in the downturn remains rather unlikely. Strong growth in Asia underpins a relatively buoyant outlook for the world as a whole, even if America stumbles. Even so, the renewed boom in asset prices remains a big worry.

Most bubbles eventually end in tears. The irony of the present situation is that it is a direct result of the monetary response to the bursting of the last bubble. Very low inflation, or in Japan's case outright price deflation, has allowed central bankers to address the bust caused by the overinvestment of the last boom by bombarding their economies with cheap money.

The position has been further distorted by massive foreign exchange intervention by the Asian central banks. In the first two months of the year, dollar purchases by the Bank of Japan reached epic proportions. Most of this spending finds its way into US debt markets, helping to keep rates low which in a self perpetuating circle creates even more cheap money to flow into asset markets.

Small wonder investors are starting to lose their nerve.

Leeds/Leighton

Everyone loves Allan Leighton, chairman of Royal Mail, lastminute.com, Cannons, Bhs and much else besides, but his involvement with Leeds United has been a disgrace. Leeds was yesterday "saved" from financial meltdown by a consortium of local businessman, but in the process, shareholders were left high and dry. They'll get nothing from the "rescue" takeover bid, which saves the famous English football club from the bankruptcy courts but wipes out everyone else.

Mr Leighton was deputy chairman of Leeds throughout the years of profligacy which led directly to yesterday's events, but he abandoned ship last year when it was already apparent the club was in deep trouble, citing a conflict of interest. Rather than remain at his post, as all good skippers should, so as either to salvage something from the wreckage for shareholders or go down with the ship, he commandeered the last remaining lifeboat and rowed off into the sunset. He was off to get help, he said, and he would be back with rescue finance. Needless to say, he never returned. It wasn't a good explanation then, and it looks even worse today. The words rats and sinking ships spring readily to mind.

Daily Telegraph

The Battle for Canary Wharf may be drawing to a close, but still there's no end in sight in the auction for The Daily Telegraph. Lazard Brothers has set a new deadline of 23 March for final bids but bringing matters to a close may not be so easy. Having been told that only bids of £600m or more would be considered, I gather that Terry Smith, chief executive of Collins Stewart Tullett, is planning to return with a consortium bid for the whole of Hollinger International. This would be the Hollinger board's preferred exit strategy if the price were remotely right. Selling off the assets piecemeal is both messy, and could be subject to some big tax liabilities.

Mr Smith's strategy would be to team up with an American private equity house, which on acquisition of Hollinger would take the Chicago Sun Times. The Telegraph Group would be separately floated in the UK using the accelerated IPO method pioneered by Collins Stewart. It may work, it may not. Whatever the outcome, urgency is of the essence. With every day that passes, The Daily Telegraph slips further into the sea. Even those said to be "desperate" to own the titles, are beginning to wonder whether it can really be worth the heady price demanded.

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