Northern Rock Revises Bid Offering Government 10% Stake
In an attempt to win the Treasury's support, Northern Rock's in-house management team has revised the terms of its bid by offering the Government a 10% stake in the once-troubled bank.
Paul Thompson of Northern Rock explained how the bank will grant a warrant that could be converted into 10% of the group's equity within a decade, thus allowing the Government to share in the bank's recovery. Despite the generosity of this offer, it has nevertheless raised fears over whether or not it will be sufficient enough to beat the one put forward by Branson's Virgin Group.
Virgin is proposing a much larger capital injection into the bank along with taking over all management control. It is offering the government warrants that will be reflective of performance and have a possible pay out between £100m and £200m within 3 years.
If Northern Rock's revised offer is turned down, the government will then look to two of the bank's biggest investors, SRM Global and RAB Capital. Each of these investors has vowed to fight both the Virgin Group’s rescue bid and possible government plans to nationalise the bank.
Jon Wood of SRM, who controls some 12% of the company, is in full support of in-house management. He said,
"The best solution is for this company to stay independent. We are prepared to reject the Branson bid. We are prepared to reject nationalisation. We are prepared to go to court and to Europe if necessary. We are prepared to pursue this to the bitter end."
In addition, Wood stated that the government's decision to treat the bank's bail-out as state aid is 'misconceived'. He believes that government assistance to Northern Rock should not fall under the European Union's state-aid rules, but rather be treated as a normal central-bank intervention in the financial markets.
Philip Richards of RAB said, "You really would think that the government would want to take responsibility for a company that has got into financial difficulties and to rebuild it for the benefit of all stakeholders."
Published on February 18, 2008
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