UK: [Northern] Rock suitors offer 'nothing' for shares

The Telegraph ^ | 10/13/07 | Helen Power and Iain Dey

[bruinbirdman]

The three suitors for Northern Rock are all offering shareholders almost nothing for their stakes in the beleaguered high-street lender.

Richard Branson's consortium will
not offer cash to shareholders

Initial expressions of interest were submitted to the bank by the 4pm deadline on Friday by Sir Richard Branson's consortium, the buyout house JC Flowers and hedge fund Cerberus. Although none has put a final price on the table it is understood the bidders have indicated to the Government they would offer close to zero for the shareholders' equity.

"The buyers have said to us their values [for the business] go from nothing to something and are probably nearer nothing," confirmed one senior Whitehall source.

Separately, The Sunday Telegraph has learned that Branson's consortium has sounded out three banking veterans – former Lloyds TSB chairman Sir Brian Pitman, former Lloyds TSB chief executive and outgoing chairman of ICI, Sir Peter Ellwood, and former Bank of Scotland chief Sir Peter Burt – about taking the chairman's role of a merged Northern Rock-Virgin Money.

He has held talks with a number of banks, including Barclays, about providing debt. Interest has also come from the Middle East funds.

But Branson's consortium, which includes the US bankruptcy veteran Wilbur Ross, London hedge fund Toscafund, AIG and Hong Kong investor Victor Chu, will not offer cash to shareholders. Instead the consortium would inject up to £1bn in cash and assets, including Virgin Money, to take an equity stake at a significant discount. The deal would slash the value of Rock's shares, trading at 273p on Friday, but offer shareholders a share of the success if Northern Rock prospers.

Neither Flowers nor Cerberus are expected to offer cash to shareholders, although The Sunday Telegraph has learned Flowers is now considering a form of profit-share to rival Branson's bid..

Sources close to the sale warned that the shareholders of Northern Rock could still fight a sale, believing a gradual government-backed wind-down of the bank would deliver them more cash. "The shareholders might think they might make more from a run-off," said one source.

Flowers and Branson would run Northern Rock as a going concern, saving nearly 6,000 jobs while Cerberus could save some jobs by merging Rock's operations with the GMAC's UK mortgage business.

Last night, sources close to the talks cautioned the real issue remains bidders' inability to raise debt for a new line of funding for the bank. The government believes Northern Rock needs around £30bn to ensure survival without its state guarantee, which it believes cannot be transferred to a bidder without breaking European Union law. Citigroup has offered £10bn in temporary funding, but does not want to become a "white knight" leading a bail-out. Sources said the chances of funding hinge on interest rate movements and how quickly the credit crunch eases.

[acapesket]

I wondered what would posess Sir Richard to jump off a hotel tower in Las Vegas on a very risky bungee cord! Perhaps it was symbolic of some need to prove himself to himself as his irrational exuberance for tolerance, diversity, and Al Gore type global warming schemes begin to disintegrate.
If only the Hippies would just go away! Especially the super rich ones!

[bruinbirdman]

"I wondered what would posess Sir Richard to jump off a hotel tower in Las Vegas on a very risky bungee cord! If only the Hippies would just go away! Especially the super rich ones!"

Actually, Mr. Virgin rapelled down the side of Las Vegas' 407-feet-high Palm Casino Hotel using a mountaineer's full harness and scaling rope.

Even the owner of more than 200 companies employing 10s of thousands needs a little recreation now and then.

yitbos

[acapesket]

Apparently you didn’t see Sir Richard get beaten against the wall in a high wind? Me
thinks he’s not feeling so great this week.
I respect the man’s ability to make money and be benevolent. I suspect his overriding confidence may have been attractive at some point.
He chose to become political, idealogic, and bought into his own fame. He’s enormously attractive in all aspects.
Narcsism, however has never bought happiness.

[bruinbirdman]

"Apparently you didn’t see Sir Richard get beaten against the wall in a high wind?"

I'll have to admit I was not at the Palms in person. I saw it live on TV with many boring replays. I live just outside Las Vegas. Apparently you assume things for no reason. The guy got a little beat up. It was no big deal. Any bruise blows up to life threatening if one is a billionaire.

As stunts in Las Vegas go, this one barely registers.

yitbos

[acapesket]

no comment. we are clearly not on the same wavelength.
ta