Barclays pulls out of bid battle for McCarthy & Stone

The retirement homes builder McCarthy & Stone will pay a £10m break fee to Barclays Capital and Permira after the private equity companies pulled out of a bidding war for the business.

A rival consortium comprising Bank of Scotland, the billionaire property investors Simon and David Reuben and the retail tycoon Sir Tom Hunter, in effect sealed the deal last week when it struck an arrangement with the property magnate Vincent Tchenguiz to stop him trumping the £1.1bn offer. The Bank of Scotland-led consortium, which is called Mother Bidco, lodged an offer of 1,075p a share last month thatwas immediately recommended by the board of McCarthy & Stone.

The homes builder is liable to pay a break fee to the Barclays Capital/Permira consortium, called Mars Bidco, after recommending its £10-a-share bid earlier in the year. As part of that deal, McCarthy & Stone's board agreed a break fee of nearly £10m to cover the consortium's costs if the takeover did not proceed.

The break fee proved contentious as McCarthy & Stone's management was later forced to reject Mother Bidco's initial 1,030p-a-share bid as it could not agree a new break fee. Mother Bidco offset the effect of the break fee by purchasing a 4.7 per cent stake in the builder at a price of 1,060p a share before lodging its knockout 1,075p-a-share offer.

Despite raising its bid, Mars Bidco was not able to match the higher offer and confirmed in a brief statement yesterday that it had dropped out of the bidding war for McCarthy & Stone.

Keith Lovelock, the chairman of McCarthy & Stone, said: "I am pleased that the uncertainty surrounding the future of the company has been resolved and look forward to an orderly transfer of ownership and management."

The bidding war pushed McCarthy & Stone's valuation well above its net asset value, last reported at 438p a share. That in effect ruled out industry interest in buying the company.

McCarthy & Stone's customer base is considered a key attraction to the private equity bidders as its elderly buyers can often pay for property upfront. The company's valuable land bank is also considered a key attraction. Even so, analysts had viewed an £11-a-share bid as unlikely, given the growth prospects of the company.

McCarthy & Stone urged shareholders to tender their shares before the offer closing date of 3pm tomorrow. Mother Bidco owns 19.25 per cent of the company, while a further 15.3 per cent of shareholders have accepted the bid.

Shares in McCarthy & Stone fell 10.5p to 1,071.5p yesterday after the company confirmed that it was not aware of any further bidders. The shares had been hovering above the 1,075p offer price in anticipation of another round of bids.