Bidding for Northern Rock closes today

04 February 2008 / by Rachael Stiles
Today is the last opportunity for potential bidders for Northern Rock to put their cards on the table, with plans from three parties expected by the end of the day.

Sir Richard Branson's Virgin Group, Luqman Arnold's investment company Olivant, and Northern Rock's in-house team led by Paul Thompson, are all thought to be finalising plans for today's Government-imposed deadline, but it remains difficult to determine which is the most favoured.

It was thought that Virgin – which will re-brand Northern Rock's 'tarnished' name with its own – has been leading the race with the Government as the most appealing deal, and has revealed research which found that 69 per cent of Britons would not put their trust or their savings in a bank called Northern Rock.

However, Sir Richard has turned his back on the demands of shareholders, refusing to persuade them with additional sweeteners, and is demanding a 54 per cent stake in return for Virgin's £1 billion injection of liquidity.

With Virgin losing ground, Northern Rock's management is gaining confidence and has recently secured financing from a separate group of investors. Thompson's proposal includes retaining the Northern Rock brand and keeping much of its management in place. However, he has to fight against the Government's inclination to break ties with the Northern Rock name.

Olivant remains in a strong position with shareholders, having won the affections of private equity firms RAB Capital and SRM which hold a collective 18 per cent share of the bank.

The Treasury, the Bank of England and the Financial Services Authority, advised by Goldman Sachs, could take until the end of the month to make a decision, and must fund a solution by March 17, at which point the current emergency funding must be cut off and a new agreement put in its place. All three bidders face a commitment to the taxpayer to ensure they benefit from any financial recovery of the bank.

In order to avoid the wrath of the European Commission for providing state aid and therefore giving the bank an advantage over other financial institutions, each bidder will have to make risk-adverse plans and rein in Northern Rock's business, possibly by half, considerably decreasing its mortgage lending and making job cuts.

It is feared that shareholders will attempt to block any deal they are not happy with, but the Government has reminded shareholders and taxpayers that they could be faced with little option than to nationalise Northern Rock if a better solution is not presented to them.

© Fair Investment Company Ltd