Retirement homes builder McCarthy & Stone has switched camps to back a £1.1 billion offer from a consortium led by the Bank of Scotland.
The consortium, which includes billionaire investors Simon and David Reuben and Sir Tom Hunter, tabled the £10.75 a share bid for McCarthy yesterday.
McCarthy had previously backed an offer worth £10.30 a share made by rivals Barclays Capital and Permira which valued the builder at £1.06 billion.
Recommending the latest offer, chairman Keith Love-lock, said: "It represents a significant increase in value for shareholders compared to the previous offer."
McCarthy shares lifted more than one per cent as i nvestors welcomed the improved offer.
The takeover battle for the Bournemouth-based firm has seen its shares soar 39 per cent in the last two months.
The group is an attractive prospect to bidders because of its large land bank and because of the growing number of elderly people looking for retirement homes.
McCarthy is responsible for about 60 per cent of retirement homes in the UK and has a regional office employing about 50 people in Coventry.
Its West Midlands develop-m ents include sites at Aldridge, Droitwich, Stourbridge, Mere Green, Selly Oak, Streetly and Tamworth.
The bidding war for McCarthy began in early June when the firm revealed it was weighing up a number of offers.
Last month, it agreed a £10 a share deal with the Barclays-Permira bidding team called Mars Bidco. This triggered a rival bid from the Bank of Scotland consortium, called Mother Bidco, of £10.30 a share.
While the offer was rejected because McCarthy could not meet a request for a break fee clause to be included, Mars Bidco responded with a £10.30 a share offer of its own.
On the same day, the Bank of Scotland consortium, Mother Bidco, bought a 4.7 per cent stake in McCarthy for £50.9 million, or £10.60 a share.
The recommended improved offer means that Mars Bidco will be entitled to a one per cent break fee, which is around £9.5 million.
The Bank of Scotland consortium said its latest £10.75 a share offer reflected its "very strong desire to acquire McCarthy & Stone".
It said the bid was 48.1 per cent higher than the average closing price of McCarthy shares of 725.8p for the six months to June 1.
Mars Bidco yesterday declined to comment.
Numis Securities analyst Rachael Waring, however, said the Mother Bidco consortium was paying a full price.
And she noted Mars Bidco had only matched Mother Bidco's offer in the last round of bidding.
The new offer was worth about 2.3 times McCarthy & Stone's forecast net asset value (NAV), compared with an average of about 1.3 times for recent housebuilding deals.
She said: "Whilst I can understand there should be a premium, I personally think 2.3 times NAV is pretty full."
NAV normally undervalues the actual value of house-builders' assets by about 30 per cent, because it does not keep up with inflation.
The land on McCarthy & Stone's books is older than most housebuilders', because it takes longer to get planning permission for retirement homes, and so the gap between its NAV and actual valuation is bigger, analysts think.
Mother Bidco is a subsidiary of Mother Midco, which in turn is part of Mother Topco. Mother Topco is 58 per cent-owned by Bank of Scotland, 33 per cent by David and Simon Reuben's Aldersgate and nine per cent by Tom Hunter's West Coast Capital.
Shares closed up 22p at 1099.