Talk to us or else says Rock suitor

Dec 1 2007 by Paul James, The Journal

NORTHERN Rock suitor JC Flowers will revise its bid for the bank to satisfy the Government’s criteria, but could withdraw its offer, according to reports last night.

Sources close to the American group were quoted claiming it had been trying to contact Treasury officials but had not heard back.

The Government wants to ensure all the money it has lent to Northern Rock will be repaid on a par with other creditors, and wants the bank’s shareholders to be offered some exposure to any turnaround.

And yesterday a source close to the bid said Flowers would change its takeover proposal to address both issues.

But it will withdraw if the Government does not discuss the issues with its representatives, although the Treasury said it was ready to have discussions with any bidder that met its principles.

The JC Flowers bid is understood to offer £15bn of immediate repayment for the Bank of England, and then a further £10bn by the end of 2010 at the latest.

The bid would also see “some form of continued participation for shareholders”, although the extent of those benefits, or Flowers’s commitment to the North-East and the Northern Rock Foundation, are not clear.

Last night Robin Ashby, who formed the Northern Rock Small Shareholders Group, said that a bid from the Olivant group, led by former Abbey chief Luqman Arnold, would be the preferred option for shareholders.

While Virgin was this week named Northern Rock’s preferred bidder, Olivant’s bid would also keep the bank’s headquarters in the North-East and see the support for the Northern Rock Foundation continue.

And Olivant proposes taking a stake of between 10% and 20% in the new bank, as opposed to the 55% that Virgin wants, which would mean the values of existing shares would be diluted far less.

Mr Ashby said the private shareholders would represent around 25% of the total shares in Northern Rock.

Added to Northern Rock’s biggest shareholders, the SRM and RAB groups, who are thought to favour the Olivant bid, he said the support for Mr Arnold’s group would approach half the bank’s shareholders.

He said: “We’ve got two bids on the table. For a third one, unless they can be more specific, I don’t think we can take much interest in it.

“Olivant is the best we have heard so far that meets our requirements. From what we have seen it represents by far the largest ongoing stake for the shareholders.

“Feedback from members on the Branson bid is that they weren’t very keen at all, partly because we’d be required to part with money for a minority stake in the business.

“It’s clear that the two largest shareholders both think it’s got something going for it. That is a substantial proportion of people indicating that the Olivant one seems to be preferable.”