Canary Wharf bid in the balance
A JOINT bid for Canary Wharf from Morgan Stanley and Goldman Sachs is hanging in the balance as the investment banks struggle to finalise a deal that would double cash support from key US shareholder Simon Glick.
Though he has pledged his 9% stake to their bid, Glick is understood to be insisting on added security for additional investment - which could breach takeover rules.
The setback lessens the chances of an early resolution to the three-way battle to take over the Docklands developer, which at one point was valued at up to £1.8bn.
Any bid from the once-favoured bank consortium could 'now be several weeks away', a deal source said.
The group is understood to be thrashing out terms to double Glick's cash investment to £200m in a way that would be acceptable to complex takeover rules.
Glick is understood to want preferential shares or loan notes in the 'newco' takeover company, rather than straight equity for any increased cash investment. This may not be allowed under takeover rules concerning 'joint offerors'.
One source said: 'Glick needs to show he has an equal risk in the takeover vehicle as Morgan and Goldman. Taking ordinary shares like the banks is a risk he may not want if he is upping his cash investment.'
Potential bids from Brascan of Canada, a 9% shareholder, and a consortium led by founder and chairman Paul Reichmann, a 7.5% shareholder, are also being held up as they struggle to secure backers. Warrants over Canary Wharf shares held by Reichmann further complicate the banking consortium's debt-to-equity ratio in its offer.
If the banks later want to sell down Canary Wharf assets, they could see Reichmann's stake in the company double to 15%. 'The warrants are disastrous for a highly-leveraged bidder,' one deal source said.
Indicative takeover prices for Canary Wharf are thought to have dropped over the past two weeks from between 290p and 310p ,or £1.8bn, to around 275p, or £1.6bn. The shares are currently trading at 270p.
Sources close to Reichmann and his IPC bidding vehicle said they had 'yet to put together a capital structure' for a bid company. Reichmann declared an interest in making an offer last Friday.
Lehman Brothers is currently Reichmann's sole financial adviser and the bank has not ruled out providing debt finance.
Attempts to tie in Reichmann's support to a Morgan-Goldman Sachs bid fell apart last week, reportedly over price.
Brascan, meanwhile, is understood to be still searching for an equity investor in addition to support from Merrill Lynch's private equity arm. Merrill and Deutsche Bank, Brascan's co-financial advisers, are ready to provide debt finance.
