Reichmann may top £1.55bn offer for Wharf

Paul Reichmann, the Canadian property tycoon, is considering a new takeover bid for Canary Wharf, the property group where he was executive chairman, after Morgan Stanley last night offered £1.55bn for the company.

People familiar with Mr Reichmann's plans last night said there was a "strong likelihood" of him proceeding with a rival bid and that he was working on a consortium to wrest control of the group's famous east London property assets.

A third bid for Canary Wharf could still come from Brascan, a rival Canadian property group, although Morgan Stanley looked to have seized the initiative with a 265p-a-share proposal late yesterday. Crucially, the offer, which is part cash and part equity, will be underwritten by Morgan Stanley. This is likely to make it more attractive to Canary Wharf shareholders given its greater certainty.

Yesterday the independent committee formed by Canary Wharf's board to consider bids for the business said it would be willing to recommend Morgan Stanley's offer to shareholders. Morgan Stanley is making its bid through a real estate fund and is in tandem with Simon Glick, another property investor who is already a big shareholder in Canary Wharf.

A statement from the company said: "Accordingly, the company is now working with the consortium with a view to announcing the full terms and conditions of the offer as soon as practicable."

Although Morgan Stanley's move does not yet constitute an official bid for the company, it strengthens its hand and ups the ante considerably in the drawn-out battle for control of Canary Wharf, which is now in its sixth month. It has already had one takeover offer rejected by Canary Wharf's independent committee.

The key terms of Morgan Stanley's new proposal are a basic offer comprising 220p a share in cash plus 45p in limited voting shares to be issued by a new parent company of Canary Wharf. This new company will be listed on AIM. This compares with the 35p value of the limited voting shares in a previous offer made by Morgan Stanley.

There will also be a mix and match facility under which shareholders can elect to vary the proportion of cash and shares they receive. This means investors who want to keep an exposure to the property sector can choose to receive more of the offer price in shares.

Morgan Stanley is also offering a cash alternative for 100 per cent of the consideration, so investors can sell out completely if they wish.

It is proposed that the shares offered to investors in the new quoted vehicle will represent 33 per cent of the share capital of the new parent company. They are expected to be formally valued at 45p in the offer document.

However, attention will now be thrown back onto Mr Reichmann, who stood down as executive chairman of Canary Wharf earlier this year in order to take part in the bidding process for the company. He said in early October that he intended to form a consortium to make a bid for the company with which he is synonymous. Mr Reichmann originally formed the business in the 1980s to take advantage of the boom in financial services in the nearby City of London. The company fell into financial difficulties before being rescued by its banks and subsequently floated on the Stock Exchange.

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