Northern Rock shares fall following Virgin rumours
by Richard Kilner
Potential difficulties rumoured to exist in the Virgin consortium bidding for struggling bank Northern Rock have sent the bank’s shares falling by 7%.
The sharp decline occurs despite the positive news that a number of alternative bids, including a revised offer by US private equity firm JC Flowers, will be made later in the week.
Speculation is mounting that Deutsche Bank, one of Virgin’s financial backers, is having second thoughts over the proposed takeover bid.
The falling share price is almost certainly due to the fact that the bank’s preferred bidder has begun to look less solid, spreading a sense of unease amongst shareholders who had hitherto been enjoying increasing share prices.
Simon Willis, analyst at NCB Stockbrokers, has opined that a second look at the Virgin consortium’s offering may have caused people to question whether it is as good a deal as many thought the first time.
The two largest shareholders in Northern Rock, SRM Global and RAB Capital (both hedge funds, with 9% and 7% stakes respectively), have indicated their opposition to the Virgin bid, feeling it undervalues the bank substantially. SRM has been recently enlarging its stake in the bank, fuelling rumours that it would seek to prevent Virgin from successfully procuring the bank.
Northern Rock’s share price tumbled by 7.6%, down 9p to 109p.
JC Flowers has been approved by the Treasury as it has guaranteed it would repay Northern Rock’s massive Bank of England loan at the same rate as other commercial lenders. In addition, it is speculated that Flowers would permit current shareholders to enjoy some of the benefits of an improvement in the bank, should their bid prove successful and the bank bed turned around.
A second US private equity firm, Cerberus, may also put forward a proposal, and Olivant’s bid (led by City big hitter Luqman Arnold) could be made as soon as Wednesday.
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