High stakes in the race for the Rock

Nov 13 2007 by Adrian Pearson, The Journal

As a fourth bidder emerges for the troubled Northern Rock, concerns continue over just what future role the bank will have in the North-East. With a Friday deadline fast approaching for would-be owners, Adrian Pearson looks at what each bidder’s proposals would mean for the region’s 5,700 employees.

THIS time next week Northern Rock bosses will be mulling over four options for its future.

Chairman Bryan Sanderson – along with Treasury officials – will have to consider the best deal for shareholders and staff as they consider who will own the bank by the time Government loans run out in February.

Last night the Rock’s share price was up 9.4% at 154.4, as the market waits to see what will happen.

The four bidders currently offering to take over the bank all face the same massive financial hurdles if they want to run the UK’s fifth largest mortgage lender.

Many City experts have predicted any takeover would need more than £30bn, as the bank has taken out loans of more than £20bn since the start of the crisis.

Virgin Money, JC Flower, Cerberus and Olivant are the four big names in the buyout process, with four very different approaches.

Campbell Maclachlan, assistant director at financial advisers Wise Speke, said there was already a clear favourite.

He said: “The latest approach from Luqman Arnold is perhaps the most credible and realistic approach so far. Time is not in the bank’s favour, but clearly the company and investors do not want to see it dismantled and the Arnold approach may offer a workable solution.

“Crucially, the move would align the interests of both the company and investors and in doing so, it is welcome but funding issues remain and are yet to be resolved.”

Robin Ashby, from the Northern Rock Small Shareholders Group, said they had a set criteria to apply to any bids.

He said: “Our preferred outcome has always been to see Northern Rock continue as an independent bank based in Newcastle.

“We want whatever solution is reached to have a role for the existing small shareholders. It would be terrible for the small shareholders to not get their fair share back.

“Someone will make a lot of money from this and it would be wrong for that to be at our expense.”

By the end of Friday all the paperwork will have been sent from the potential bidders.

Yesterday a spokesman for Northern Rock said they were looking at all options, including sale, but could not confirm the details of any bidders.

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Cerberus Capital Management

Who: US based leading private investment firm which specialises in buying up “undervalued” companies. Its chairman is John Snow (pictured right), a former US Treasury secretary.

It is said to have heavyweight backing from GMAC, the financial services business.

Intentions: Keeping mum. The takeover group have not revealed any plans for the bank’s independence, its staff or its future as a North-East company.

Reports in the national media say Cerberus is considering a move to buy and break up Northern Rock’s assets.

Northern Rock Foundation: No comment, but the charity would face closure or a serious reduction if the bank is broken up and sold on.

What next: Cerberus has gone through due diligence – a process in which bidders are allowed to inspect the books.

Although not a lot is known about the Cerberus bid, the Treasury is thought to favour a takeover by another bank.

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Luqman Arnold

Who: Olivant is the latest investment company to join the bidding. Luqman Arnold (pictured below), one of the City’s most experienced bankers, is currently drawing up proposals.

The former boss of Abbey has gathered together a takeover team including Brian Keane, a former investment banker with Deutsche Bank, and Kirk Stephenson from law firm Freshfields Bruckhaus Derringer.

Intentions: Optimistic. Luqman Arnold has a good reputation in the city after rescuing Abbey, which he transformed from a struggling bank into one of the high street’s most successful companies.

The suggested scheme involves Mr Arnold acquiring an equity stake of between 10% and 20%, and he would see a return on his investment only if the company’s value went up – choosing not to take a salary, advisory fees or any bonuses.

There are no private equity firms involved and Mr Arnold has no immediate plans to sell the bank, preferring to use top-level management to turn it around.

The bank would remain an independent North-East company but there are no promises to the workforce.

Northern Rock Foundation: Olivant is thought to value the work done by the charity.

What next: Mr Arnold has not revealed his plans to solve the multi-billion pound debt built up over recent weeks. And as the latest group to enter the bidding it is not yet clear if he has seen the full scale of the task ahead.

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Virgin Group

Who: Consortium led by Sir Richard Branson (pictured right) with insurance and financial services group AIG Financial Products, WL Ross & Co who specialise in buy-outs and restructuring, international investment group Toscafund Asset Management and Hong Kong-based First Eastern Investment Group.

Intentions: Good. Bank stays independent and broadly similar to present structure. The group would rename the bank Virgin Money in order to “repair its franchise and the confidence of stakeholders.” The consortium insists it has no plans to break-up the bank or sell off various parts.

Branson has been the most open of the four bidders in his plans for the company, and admits it will need a “substantial cash sum” before it can expect to return to normal trading.

Branson originally promised there would be no redundancies but this was later watered down.

Northern Rock Foundation: Strong commitment from Virgin. The consortium has promised to continue handing over a percentage of profits to the charity.

What next: Branson is confident that Virgin’s “100% name recognition “ will lead to a quick turnaround for the bank.”

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JC Flowers Consortium

Who: American investment group thought to have prepared a strong financial bid for the bank. Owner J Christopher Flowers (pictured left) is ranked 799th in the world billionaire list.

Paul Myners, a former chairman of Marks & Spencer, would take over as chairman. Two former bank chiefs are also on the proposed management team, making it one of the strongest bids.

Intentions: Playing its cards close to its chest. The group have admitted they are in talks with the bank but have warned there is “no certainty” they will make a bid.

Northern Rock Foundation: The group have been suspiciously quiet on the future of the charity.

What next: The bank is expected to receive more than £2bn from the sale of Dutch merchant bank NIBC Holding NV next month. This would add to the reported £15bn Flowers has secured for the takeover bid. City experts expect the bid to be the strongest.

The group has made no commitment on staffing levels of keeping the bank in the North-East.