The Thing Is: Morgan Stanley plans to stub out its rival bidders

Canary Wharf
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The Independent Online

Just when it seemed that all bids for Canary Wharf had been stubbed out, the Morgan Stanley consortium is back - with a bigger and better stub.

Suddenly, the other two potential bidders, chairman-in-suspense Paul Reichmann and Canadian property group Brascan, are reconsidering their positions and the market is betting that a bidding war will break out. Canary Wharf shares closed the week at 269.5p. Yet strictly speaking not a single definite offer is on the table.

Mr Reichmann, who stepped aside as chairman at last month's AGM, seems no nearer to finding the cash after six months. His spokesman, Lord Bell, said: "He is continuing to put his consortium together and hopes to make a bid in the new year, although there is no certainty of one."

Brascan, which at least drummed up £1.5bn to fund a 252p proposal, is sitting more comfortably. At worst, it should be able to sell its 9 per cent stake for a profit of about £50m. Alternatively, it could come back with a higher bid, though it has consistently said that it will not overpay.

However, Morgan Stanley and its bid partner, diamond magnate Simon Glick, occupy the high ground this weekend. The key to Morgan's bid is the stub, a device that sprang to notoriety in 1989 when a debt-laden venture capital group called Isosceles bought the Gateway supermarket chain. Gateway shareholders were offered cash plus a small stake - the stub - in the new owner. The idea was that Gateway investors would share in the presumed rip-roaring success that would follow the takeover. Alas, the Isosceles stub proved worthless.

Morgan's Plan A at Canary Wharf was to offer 220p cash plus a 35p stub for each Wharf share and list the stub on AIM. But small shareholders wanted cash while many institutional investors would not or could not hold AIM-quoted shares.

Morgan and the Canary Wharf board feared the value of the stub, notionally based on 28 per cent of the new holding company, would plummet as more than half the investors dumped their unwanted stakes.

Now the Morgan consortium is back with 220p plus a 45p stub based on 33 per cent of the holding company. This time, investors can take 265p in cash, a far more attractive proposition.

Saudi billionaire Prince Alwaleed bin Talal is providing the extra cash. The prince has 2.2 per cent of Canary Wharf and the Glick family 14.5 per cent. Add Brascan's share, assuming it accepts, and two other shareholders that were prepared to accept 252p, and the Morgan consortium has a potential springboard of over 34 per cent.