Great Portland in play after Liberty move

Great Portland Estates, the property group with a £630m portfolio, was put in play yesterday when Liberty International revealed that it had built its stake in its rival to almost 20 per cent.

The news sent Great Portland shares up 4 per cent to 224.5p. Unusually, Donald Gordon's Liberty suggested that it was considering a full bid for the company. "Liberty International continues to review all its options in connection with this substantial shareholding," the company said.

Industry sources said it was more likely that Liberty would sell its stake to another bidder and it was simply looking to be a "king-maker", possibly to a financial buyer.

"There is a break-up bid here on the cards," said one player. "There are loads of people looking at this [Great Portland]. The leveraged boys are all over it."

Liberty announced it had acquired a further 5.8 per cent stake in Great Portland at 217.5p from an institutional investor, possibly Taube, Hodson, Stonex Partners. Its shareholding now stands at 19.4 per cent. It is unclear what the eccentric 72-year-old Mr Gordon, chairman of Liberty, plans to do with the holding but the size of his interest gives him certain influence over the Great Portland board and a blocking stake in any takeover battle.

Andrew Penny, analyst at JP Morgan, said: "There must be a relatively good chance of them [Liberty] making a bid but I wouldn't think they are in any hurry....Values are falling and it's a question of timing."

Great Portland's property is focused on offices in the West End, where, given the poor health of many tenants or potential tenants, real estate values are falling. The company has a new management team, led by Toby Courtauld, the 34-year-old chief executive, but it has just reported a 5 per cent drop in the underlying value of its portfolio, for six months to the end of September. It is expected to see a similar fall in the second half of its financial year, meaning any party bidding now would not be catching the company at the bottom of the cycle.

Mr Courtauld, who has begun the process of turning the company around, was part of a successful management buyout when he was at the property giant MEPC. Since that deal, over two years ago, private equity and leveraged buyout specialists have been scouring the quoted property sector for other candidates. However, the lower quality of Great Portland's portfolio would make a highly leveraged bid for the company difficult.

Jeremy Anagnos, analyst at Deutsche Bank, said: "It's a tough time to bid for a portfolio like Great Portland's. The credit risk is higher [compared with MEPC] and it does not present such a guaranteed income stream [to the debt financiers of a bid]."

Liberty has some West End offices that would fit well with Great Portland's but most investors would prefer Mr Gordon to focus on his company's shopping centre assets. Liberty's stake has been built up at an average price significantly above Great Portland's current share price, leaving Mr Gordon sitting on a loss so far.