extract from
http://www.investorschronicle.co.uk...4-a4aa-11dc-bfea-00144f2af8e8/FTSE-firmer.jsp
7/12/07
PRESS SUMMARY:
US private equity firm JC Flowers has walked away from the competition to buy Northern Rock, raising the prospect that the Government will have to consider nationalising the Newcastle-based lender, reports the Telegraph.
In letters sent to the stricken bank and to the Treasury yesterday afternoon, Flowers is understood to have told Northern Rock's chairman, Bryan Sanderson, and John Kingman at the Treasury that it could not construct a deal meeting its own profitability criteria that would be acceptable to the Government.
The Times adds that a bid for Northern Rock from Olivant, the investment group run by Luqman Arnold, is also hanging in the balance after it emerged that the firm was refusing to sweeten its takeover proposal.
Meanwhile, Northern Rock said yesterday that retail deposits had stabilised as it revealed for the first time the amount it had borrowed from the Bank of England. The bank said that outflows of deposits had reduced sharply since Virgin Money was announced as preferred bidder nearly two weeks ago. The prospect of a one-off bonus for existing savers also helped to shore up the deposit base. The bank said it had borrowed less than £700m from the Bank of England in the past week, taking its total borrowing to about £25bn, writes the Independent.
and
extracted from
http://www.investorschronicle.co.uk...8e8/Olivant-outlines-Northern-Rock-rescue.jsp
Olivant outlines Northern Rock rescue
Created: 7 December 2007 Written by: John Adams
Further details have now emerged from Olivant - the investment firm headed by former Abbey National boss Luqman Arnold - concerning its rescue plan for stricken mortgage lender Northern Rock.
While thin on detail, Olivant - which says its looking to merely inject its expertise into the bank rather than buy it outright - is proposing to raise between £600 and £800m. Of this total, £150m of which will take the form of a subscription from Olivant with the balance being raised via a rights issue at roughly the bank's prevailing share price. Olivant says that major shareholders, currently representing 23 per cent of the bank's equity, have committed to participating in the fund raising.
Moreover, Olivant is proposing to arrange debt finance in order to repay £10bn-£15bn of the Bank of England's emergency loan with the balance - Northern Rock owes roughly £25bn - set to be repaid by end-2009. The plan has, so far, not been discussed with the government.
The proposal has met with a cautious response in the City. "Olivant has not released any data to help investors take a view on the stock," said Collins Stewart's banking analyst, Alex Potter. "This remains a high-risk situation with very little clarity and we would avoid the situation until further details emerge."
Potential bidder JC Flowers & Co is reported to have withdrawn from the race and the only other bid - from a consortium led by Virgin Group - values Northern Rock well below the current 103p share price.
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TIP UPDATE:
SellOn the face of it, Olivant's proposal could prove more attractive for investors than Virgin's bid as it would, at least, allow existing shareholders to retain a majority stake. But enough uncertainties surround both Virgin's offer and Olivant's proposal for shareholders to remain cautious. On that basis, exiting now remains the least risky option. Sell at 103p.
and
extract from
http://ebm.mailftb.com
So, JC Flowers has thrown in the towel and has walked away from Northern Rock. It might not be the last bidder to quit the race. The problem facing any proposal is that going through the normal channels it has to meet with shareholder approval. Now, most astute investors have already sold their shares, but some canny hedge fund operators, notably RAB Capital, have taken significant stakes, which in RAB's case cost nearer 200p a share. It is not about to vote itself out of millions of pounds so long as there is any possibility of someone else coming in to run Northern Rock as a going concern and giving them a chance of some upside. The problem is that Northern Rock is not a going concern. Its business model is inoperable in current market conditions, and it exists only as a result of over £25bn in taxpayers' subsidies. The latest idea is to simply close the bank to new business, run off the mortgage book and sell its assets. But this still leaves shares in the bank with little or no value. The end is nigh, or soon will be.
