BRITAIN'S biggest builder of retirement homes today appeared to be on the brink of a £1 billion takeover battle.

At the same time as Bournemouth-based McCarthy & Stone unveiled the terms of an agreed takeover, another private equity-based consortium told the City it was putting the finishing touches to a possible rival offer at a much higher price.

McCarthy shares jumped above the value of the current offer as investors eyed a lucrative bidding war.

The offer agreed by the McCarthy board comes from bid vehicle Mars Bidco made up of Barclays Capital and the private equity group Permira.

McCarthy said the offer of £10 a share, or £1.03 billion, represented a good deal for its shareholders, who would see a total return of 280 per cent since September 2001.

But the consortium was later forced to admit it was reviewing its position after another party approached McCarthy & Stone with a pre-conditional proposal worth £10.30 a share, or £1.06 billion.

The approach involved a consortium led by Bank of Scotland and featuring West Coast Capital, the private equity group headed by retail tycoon Sir Tom Hunter.

It said it had told McCarthy that it was close to completing due diligence and that it would soon be in a position to make a further proposal to the McCarthy board.

That news ensured McCarthy shares lifted by 11 per cent to 1048p yesterday. Ahead of the offer, McCarthy chairman Keith Lovelock said the deal with Permira and Barclays Capital represented the best offer on the table.

"Compared with the other approaches we have received, we believe the offer provides certainty for shareholders and the company at a value which fairly reflects the strength inherent in the business."

McCarthy & Stone is responsible for about 60 per cent of retirement homes built in the UK, but said in November that annual profits fell 14 per cent after the toughest housing market it had seen in years.