Battle for Northern Rock to intensify

The battle for crisis-hit British bank Northern Rock looks set to intensify this week as a number of suitors re-table bids to rival the one put forward by Virgin, it was reported today.

The battle for crisis-hit British bank Northern Rock looks set to intensify this week as a number of suitors re-table bids to rival the one put forward by Virgin, it was reported today.

Northern Rock could be at the centre of a four-way tussle with private equity firm Olivant expected to enter the fray, while private equity groups JC Flowers and Cerebus are set to put forward revised proposals, according to Sunday newspapers.

The move comes just days after the bank named the Virgin Consortium as its preferred bidder.

Virgin is offering to put in £1.3 billion of funds into Northern Rock in return for a stake of at least 55%, with some of the funds raised by offering shareholders further shares at a discounted 25p each.

But hedge fund SRM, which is the group’s biggest shareholder with a 9.1% stake, and its second largest shareholder RAB Capital both oppose the offer on the grounds that it undervalues the group.

The Virgin deal is thought to value Northern Rock at just £225 million – a fraction of the £5.2 billion value seen in February before this summer’s crisis hit.

Olivant, which is headed by former Abbey boss Luqman Arnold, is expected to table its offer as early as tomorrow.

The group’s proposal is not a takeover bid, but will instead involve running the bank as a going concern with Mr Arnold as chief executive and a heavyweight supporting management team working to turn the business around.

The group will take a 15% stake in Northern Rock, leaving shareholders owning the majority, while it is also thought it will offer to repay £11 billion of debt immediately.

JC Flowers is also expected to give shareholders a sweeter deal when it re-tables its bid.

It is thought the group will now offer to give them a continued stake in the bank, and is also understood to be offering to repay £15 billion of debt immediately and to rank the Bank of England equally with commercial creditors.

Members of both the Olivant and JC Flowers teams are understood to have held meetings with Treasury officials late last week.

At the same time, it was reported by the Observer that Cerberus, whose bid is being run by former Prudential boss Jonathan Bloomer, tabled revised proposals with Northern Rock late on Friday night.

The group is understood to have pledged to repay £8 billion in loans upfront and merge Northern Rock with US mortgage business ResCap, part of GMAC, the financing arm of General Motors in which it owns a 51% stake.

Meanwhile it is understood that Northern Rock’s biggest shareholder, SRM is also working on a rescue deal, according to the Sunday Telegraph.

Jon Wood, who runs the hedge fund is thought to be planning to put a proposal before the board tomorrow, which would involve a rights issue that he would fund himself.

None of the group’s thought to be planning a bid could be contacted to comment.

Northern Rock was plunged into crisis in September when it announced it had agreed emergency funding with the Bank of England, sparking the first run on a UK bank for nearly 150 years.

It is now thought to have borrowed £29 billion in emergency funding from the Bank of England.

The Liberal Democrats today accused City watchdog the Financial Services Authority of a dereliction of duty for not suspending shares in Northern Rock.

Acting leader Vince Cable today wrote to the FSA calling on it to suspend the trading of shares in the group to stop the possibility of insider trading.

He said: “The massive share speculation on Northern Rock in recent days, when it appears that many of the larger investors are privy to documents not in the public domain is a serious concern.

“It is a dereliction of the FSA’s duty in these circumstances, when there is already a false market in Northern Rock shares because of the level of taxpayer subsidy, not to call for share trading to be suspended.

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