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Bidding war expected at Northern Rock

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by Kay Mitchell

Last month, Virgin Group was looking the likely suitor for crisis-torn Northern Rock but late last week private equity group, JC Flowers, and investment group, Olivant re-entered bidding talks.

Yesterday, the board of Northern Rock’s board and its advisers were in discussions and there is now a distinct possibility that there could be a full-blown competitive auction for the bank. Chancellor Alistair Darling is expecting a bidding war to erupt this week, with a decision on the victor still hoped for prior to Christmas.

JC Flowers intended to give shareholders virtually nothing for their shares and cut them out of the future rescue of the bank but has since revised its proposal and is willing to offer them a continued stake. Furthermore, it is offering to repay £15 billion to the Bank of England but has yet to fully outline what its proposal for existing shareholders will be.

Virgin propose to repay £11 billion immediately and the remainder within 3 years. If Virgin are successful in taking over the bank, it will be re-branded as Virgin Money. Last week, Bryan Sanderson, Northern Rock’s chairman, described the Virgin deal as ‘very good news’ for the bank.

The Olivant offer is not a takeover bid and proposes only that they take a 15% stake, leaving existing shareholders owning the majority. Olivant, run by Luqman Arnold, former Abbey chief executive, believes the ailing bank can be transformed by injecting his own management team and introducing a much stronger financial discipline. Further details of the Olivant offer are expected tomorrow.

The Treasury, as Northern Rock’s largest creditor, has the ability to block any deal and may yet end up nationalising the business. A Treasury source said the Government would like this to be resolved quickly but they need to ensure that they get the right deal.

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News posted: December 4, 2007

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