UPDATE: Northern Rock shareholder questions Virgin bid

Source: Exec Digital UK

Date :27/11/2007 08:56:14

Hedge fund RAB Capital, Rock’s largest shareholder, has said the proposal by the consortium named as preferred bidder to rescue the company undervalues the bank.

The consortium is planning to inject £1.3 billion of funds in return for a controlling stake of at least 55 percent.

The deal will be funded with the offering of new shares at 25p each, giving the stricken bank a value of roughly £225 million. Northern Rock was valued at £5.2 billion in February.

Underestimate

RAB Capital chief executive Philip Richards said: "We do not believe that this proposal reflects the true value of Northern Rock, and we would expect either that this proposal be improved or that alternative proposals be brought forward which would combine a similar repayment schedule for the Treasury together with improved terms for shareholders."

About 100,000 of Northern Rock's small shareholders also wrote to company chairman Bryan Sanderson on Sunday to express fears that directors were planning a "fire sale" of assets.

Despite an upfront payment of £11 billion, the consortium will still have to repay the remaining £14 billion Northern Rock has been forced to borrow from the Bank of England to keep it afloat.

Virgin yesterday assured Northern Rock it has no plans to cut jobs and that it will retain the bank's Newcastle headquarters.

The consortium has also pledged that the Northern Rock Foundation, the charity associated with the bank, will continue to receive a share of profits.

Competitive bid

An offer from Olivant – the company owned by ex-Abbey boss Luqman Arnold is thought to be the only offer which is more attractive for shareholders.

Mr Arnold is proposing taking a 15 percent stake Northern Rock while leaving the rest of the share ownership intact.

Rival bidder JC Flowers, the American private equity firm, is thought to be weighing up its options and may submit a revised bid this week.

November 27, 2007