Northern Rock shares rise after take-over news
There are rumours in the market that Northern Rock may be taken over by the private-equity group, JC Flowers. It has raised £15 billion and commenced talks with Northern Rock’s advisers – Citigroup and Merrill Lynch.
JC Flowers was founded by former Goldman Sachs banker Christopher Flowers, rival private-equity group Cerberus is also interested but almost certainly only in a break-up.
Reports say that Christopher Flowers wants to keep the troubled bank in its entirety rather than split it up. JC Flowers has been allowed access to Northern Rock’s books to assess the bank’s financial health in more detail.
However, the news sparked concerns that any takeover could result in many job losses in the north-east of England, where 5,000 of the bank’s staff are employed.
When the credit markets seized up during the summer, Northern Rock had to seek emergency funding from the Bank of England. Since the bailout, it shares have lost approximately 80% of their value. However, following reports of the takeover, the shares have risen 12%.
An analyst at Collins Stewart is recommending that investors sell Northern Rock shares, setting a target of 130p. They see 190p as the ceiling for bids and, with most other bidders allegedly having dropped out, it is doubtful that Flowers will bid this high.
However, Keefe, Bruyette & Woods were more optimistic commenting that with JC Flowers stepping up to the plate and the appointment of another investment bank, it all seems to be heading in a more certain direction.