McCarthy & Stone rejects £30m higher offer

A £10m break fee arrangement in Permira and Barclays Capital’s £1bn bid for McCarthy & Stone, a UK homes builder, has led to a higher offer from a consortium including Bank of Scotland and Sir Tom Hunter being rejected.

McCarthy & Stone, a UK retirement homes builder, has rejected a higher bid from an investor consortium including West Coast Capital’s Sir Tom Hunter due to a break fee agreement with a rival consortium of Permira, a European buyout firm, backed by Barclays Capital.
Broomco, a consortium including Hunter, Bank of Scotland and property tycoons the Reuben brothers, formally submitted a 1,030 pence per share all-cash offer yesterday.
The offer was 30 pence per share higher than an offer from Mars Bidco, Permira and Barclays Capital’s consortium, which was recommended by the board earlier this week. The Broomco offer values McCarthy & Stone at £1.059 billion (€1.55 billion), approximately £30 million more than the Mars Bidco offer.
However, Mars Bidco’s offer included a £9.4 million break fee if the deal were to break down and constraints on offering a break fee to rival bidders.
Broomco said in a statement yesterday that the board of McCarthy & Stone was prepared to recommend its proposal “but in light of the break fee arrangements within the implementation agreement with Mars Bidco Limited it was not in a position to provide a break fee to the consortium”. Accordingly, it would not proceed with Broomco’s proposal. Broomco said that it was “considering its position”.
McCarthy & Stone’s shares were trading at 1,039 pence at 10.30am BST today, slightly down from yesterday’s close of 1,040 pence per share.
Permira and Barclays Capital are being advised by Citigroup and Dresdner Kleinwort, the Bank of Scotland consortium by Rothschild. UBS and Hawkpoint are advising McCarthy & Stone.
Despite holding a first close of its fourth buyout fund at just over €10 billion earlier this month, Permira has had some trouble deploying capital so far this year. Along with the current deadlock over its McCarthy & Stone bid, Europe’s largest LBO investor has had bids for HMV, the UK high-street music and entertainment retailer, and De Vere Group, a UK hotel and leisure group, rejected.