Olivant has dropped out of the bidding for Northern Rock, leaving the Virgin consortium vying with management to acquire the troubled UK bank, according to a statement.
The investment firm headed by former Abbey National chief executive Luqman Arnold is understood to have balked at the three year repayment schedule proposed by the government for Northern Rock’s debt. The deadline meant Olivant’s plan to take a 15 percent equity stake in the business for £150 million and parachute in a management team headed by Arnold, would not have had sufficient upside.
The business has had more than £20 billion in loans guaranteed by the UK government ($39 billion; €26.9 billion) in an attempt to find a private sector sale, according to a statement.
The Virgin consortium, which includes distressed debt investor Wilbur Ross, has submitted largely unchanged plans to fund its bid with £1.25 billion of equity, according to a statement. This is split between £500 million in equity provided by the consortium, a rights issue of £500 million valued at £0.25 per share and the £250 million valuation of a merger with the UK bank Virgin Money.
In a new detail the Virgin rights issue will allow shareholders in Northern Rock to subscribe for 4.7 new shares for every share that they currently own. Virgin argues this will mean the rights issue is priced the same as its stake. Northern Rock shares were trading up 6.25 percent at £0.93 per share at 1306.
The Northern Rock management team plans to retain control of the company by raising at least £500 million via a rights issue, according to a statement.
A City source said the hedge fund RAB Capital, with about a 10 percent stake, is considering taking between £50 million and £100 million of the rights issue should Northern Rock’s management be successful. RAB will not support the Virgin offer as this would be more dilutive to shareholders than the alternative management proposal. The valuation of Virgin Money is debateable, he said.