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Monday 06th of October 2008
June 27, 2008

Warning on TPG proposal and rights issue at B&B

by Kay Murchie

The Institutional Voting Information Service (IVIS), which is operated by the Association of British Insurers (ABI) has warned there are “breaches of sound governance” in the proposals for Bradford & Bingley’s (B&B) rights issue and the sale of a 23% stake to Texas Pacific Group (TPG).

The IVIS has placed an ‘amber top’ on the proposals, which means it is advising shareholders to apply considered judgment before voting on the resolutions.

ABI’s director of investment affairs, Peter Montagnon, said B&B’s proposals involve breaches of fundamental principles of sound governance which are unacceptable to shareholders.

After intensive consultation with our members and other relevant parties, we have opted for an amber top , added Mr Montagnon.

Fundamental principles breached include the right of pre-emption whereby new shares should be offered to existing shareholders in proportion to their existing holdings, and the preferential treatment afforded to TPG both in terms of protection against dilution and the opportunity to participate in future fund raising on preferential terms, said Mr Montagnon.

This imposes a substantial transfer of value from existing shareholders to TPG, while the fact that the rights issue cannot proceed without simultaneous agreement to the TPG deal limits the ability of shareholders to exercise their right of judgement, Mr Montagnon added.

Mr Montagnon continued that they are disappointed that B&B‘s board neglected to ensure a timely flow of management information that could have prevented the need for this unsatisfactory arrangement and urge the regulatory authorities to take additional care in encouraging bank boards not to put themselves in such a position in future.

As a result, shareholders are advised to consider carefully being voting, concluded Mr Montagnon.

It was announced earlier this week that financier Clive Cowdery of Resolution investment group had built up a 2.9% stake in B&B.

He has been in discussions with leading investors at B&B about injecting £400 million ($787 million) into the troubled UK lender.

Mr Cowdery held talks with B&B’s chairman Rod Kent at the end of last week but the plan was rejected, stating that it would mean Resolution, in effect, taking control of the company.

B&B said it aims to proceed with the planned rights issue and investment by US private equity firm TPG.

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