Brascan bid backed by leading Canary Wharf shareholder

Brascan, the Canadian property group whose bid for Canary Wharf was rejected, has had its offer endorsed by a major shareholder in the target company.

On Wednesday Brascan declared that it would take its case straight to shareholders after it was rebuffed by Canary Wharf. Franklin Mutual, a 6.8 per cent shareholder in Canary Wharf, last night became the first shareholder to come out in favour of Brascan, which has offered 252p a share in cash.

Brascan itself has a 9 per cent stake in Canary Wharf and news that Franklin supported its offer gave its campaign a considerable boost. Brascan believed that a committee of independent directors of Canary Wharf, who were charged with assessing its bid for the company, did not give it a fair hearing. Canary Wharf's chairman, Paul Reichmann, is also trying to put together a bid for the company.

Separately, it has emerged that Canary Wharf has agreed to pay the other bidder, Morgan Stanley, £1m in fees even though the US bank never made a recommended bid for the company.

The executive directors did not know of the fee arrangement and there are suggestions that they are not happy about it. The fees, agreed by Canary Wharf's independent directors, would have been £2m if Morgan Stanley's bid had been recommended.

Some analysts have been puzzled by the independent directors' desire to recommend the Morgan Stanley offer which, at 220p a share in cash plus 35p in equity, was widely considered to be far too low. Analysts said that the issue of inducement fees might help explain the attitude of the independent committee, which said earlier this week it was minded to recommend the Morgan Stanley offer but could not do so because the institutional shareholders were not convinced of the value of the equity on offer.

Morgan Stanley has now apparently walked away from Canary Wharf but the company must pay the US bank £1m. The property group declined to comment but it is understood the independent directors believed that the guaranteed fees were worthwhile to lock Morgan Stanley into the bidding process, after the US bank made an approach to Canary Wharf five months ago.