Break fee dispute stalls Reubens' bid for McCarthy

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McCarthy & Stone, the retirement homes group at the centre of a bidding war, has rejected an approach from a consortium led by the billionaire Reuben brothers after a dispute over the break fee agreed with a rival consortium.

The Reubens' consortium, which had financing from HBOS, was dependent on a recommendation from McCarthy & Stone's board and the negotiation of a separate break fee - a condition that the company refused.

Earlier this week, McCarthy & Stone agreed to a £1bn takeover offer from Mars Bidco, a bidding vehicle for the private equity companies Permira and Barclays Capital. As part of that deal, pitched at £10 a share, McCarthy & Stone agreed a "break fee" of a little less than £10m that would be payable to Mars Bidco if the deal does not proceed.

Broomco, the consortium that includes HBOS, the brothers Simon and David Reuben and West Coast Capital, the private equity company headed by the retail tycoon Sir Tom Hunter, has countered with a superior bid of £10.30 a share. As a result of the break-fee issue, the higher bid has been turned down.

"The board of McCarthy & Stone advised the consortium that it was prepared to recommend the consortium's proposal, but in light of the break-fee arrangements within the implementation agreement with Mars Bidco it was not in a position to provide a break fee to the consortium," Broomco said.

A company spokesman claimed, however, the break fee was "a non-issue" as, under takeover rules, a company can agree to a break fee worth only 1 per cent of the offer. As the Mars Bidco break fee is worth almost 1 per cent, McCarthy & Stone was not allowed to agree a separate fee.

A Broomco spokesman said the company would consider its options, but declined to comment on whether the £10.30-a-share bid would be taken hostile. If Broomco drops its demand to agree a break fee with McCarthy & Stone, it could potentially drive the bid price higher. The property tycoon Vincent Tchenguiz has also been linked with a bid but has yet to complete due diligence.

One construction analyst described the situation as "like a man trying to juggle two girlfriends". He said the two formal bids represent a huge premium to McCarthy & Stone's net assets per share, last reported at 438p, suggesting that a bid from an industry player looks very unlikely.