The unsolicited approach from the office and retail property group derailed a management buy-out by Dundonald Holdings at 218p a share, which the independent directors had recommended.

Such aggressive moves are rare in the property sector, which has been more notable for the procession of smaller quoted companies being taken private in management-led deals.

By the end of yesterday Hammerson said it had already bought about 18 per cent of Grantchester's shares, which closed up just over 10 per cent, gaining 24p to 252p. Hammerson closed down 2{1/2}p at 496p.

It took Dundonald a few hours to say it would not raise its offer. As a result, Grantchester's non-executive directors, led by Ed Luker, withdrew their recommendation but stopped short of recommending the Hammerson bid, saying they were still in talks with other interested parties.

Analysts said other property companies interested in Grantchester could include Land Securities or Pillar, but some doubted that any would bid more than 250p a share - a premium of about 22 per cent to the adjusted net asset value of 205p.

Ron Spinney, Hammerson chairman, said the group had indicated plans to make more acquisitions in the retail park area when it announced its {GBP}57.7m purchase of Parc Fforestfach in Swansea last month.

'Grantchester has one of the most attractive portfolios in the sector and there are synergies with our existing retail assets,' he said.

John Richards, Hammerson chief executive, said the two property groups had been in 'low level' talks about 18 months ago but had decided that they were not complementary enough.

Since then Grantchester had disposed of some of its non-retail assets, while the Dundonald offer had ensured that more financial information had become available to potential bidders.

The scale of the difference between the two bids - Hammerson is offering almost 15 per cent more than Dundonald - is likely to intensify the debate about the best way to value property companies. 'This may well set down a marker that shareholders will no longer accept a cheap bid just because it is higher than the last share price,' said Nan Rogers at Bridgewell Securities. 'This will encourage shareholders to be more aggressive.'

One point at issue in the valuation of Grantchester is its tax treatment. Analysts at Merrill Lynch believe Grantchester was using a calculation of future tax liabilities that was too high.

Hammerson is advised by Dresdner Kleinwort Wasserstein and Grantchester by CSFB. Copyright Financial Times Limited 2002. All Rights Reserved.

Financial Times