Morgan Stanley, the US investment firm bidding for London Docklands property company Canary Wharf Group PLC, is to start sounding out possible investors who would be interested in taking on some of the newly listed AIM stock in the parent company if its proposed 1.5 bln stg bid gets the go-ahead.
Morgan Stanley, together with 14.5 pct investor Simon Glick, are bidding 220 pence in cash for Canary Wharf, plus equity valued at 35 pence in a new parent company which will be quoted on the Alternative Investment Market.
However, some institutions have raised objections to this saying they are not allowed to hold stock in AIM-listed companies. This could create a problem when dealings in the new vehicle begin as brokers dump stock in the market, thereby depressing the share price, the overall value of the bid and disadvantaging those investors who wish to stay in.
To resolve the problem, Morgan Stanley is understood to be canvassing potential investors and small broking houses in what effectively amounts to a small book-building operation.
'The independent committee of Canary Wharf have asked Morgan Stanley to look at how they can create demand for the AIM-listed stock and stabilise the share price,' one person close to the negotiations told AFX News.
The independent committee appears unlikely to recommend the bid in its current form if a floor cannot be put under the share price. It believes the AIM-listed shares should allow shareholders to realise value in excess of the 255 pence 'headline value' of the offer.
'It´s not a show-stopper, but they (Morgan Stanley) need to go away and do a little more work on the bid process,' the source added.
Earlier today, the independent committee revealed that it had terminated talks with Canadian conglomerate Brascan over as rival bid. It offer was believed to have been pitched below 255 pence a share. Brascan holds 9 pct of the Canary Wharf equity and is likely to reject the Morgan Stanley offer.
The focus will now be on what Canary Wharf chairman and 7.75 pct shareholder Paul Reichmann plans to do next. Some observers reckon he has failed to raise the necessary funding to mount a rival offer, but that he remains unhappy with Morgan Stanley´s proposed terms.
Together, Reichmann and Brascan control 16.75 pct of Canary Wharf´s shares and could block the takeover or mount a joint challenge for the property group.