No buyer, no fee for Morgan in GRE deal

MORGAN STANLEY has signed a no-deal, no-fee agreement with Guardian Royal Exchange under which the US investment bank will receive no money if it fails to find a buyer for the insurer.

The arrangement between Morgan Stanley and GRE will increase pressure on the Wall Street bank to strike a deal with one of the suitors for GRE that have come forward since the insurer put itself up for sale last week. A number of potential bidders have so far emerged with Britain's Royal & Sun Alliance and Allianz of Germany believed to have indicated that they might be prepared to table a bid for the group. That is in addition to Axa, whose original pounds 2.5bn approach earlier this month forced GRE's hand.

Another surprise entry to the fray over the weekend was Independent Insurance, the fast -growing group headed by Michael Bright, which has indicated it may be willing to pitch for parts of the group if chief executive John Robins was ready to pursue the idea of a break-up.

City analysts remain sceptical that the interest will translate to a deal at anything like the pounds 4 to pounds 4.50 some shareholders are hoping to receive. That would value the group at pounds 3.9bn. Several City houses are urging investors to sell GRE at the current price.

GRE shares rose more than 10 per cent in the first half of last week after it announced that it was open to offers. However, it fell back later to 336.5p on Friday, as scepticism about the willingness of potential bidders to pay the asking price grew.

Weekend speculation that Mr Bright was plotting a reverse takeover of GRE was dismissed yesterday as "wide of the mark". But Independent, which specialises in high-margin businesses such as classic-car insurance, could be interested in GRE's overseas businesses. It is less keen on its UK motor and home insurance operations, which it sees as largely low-margin commodity businesses.

Morgan Stanley is also hopeful that financial bidders may be willing to throw their hats into the ring.