Olivant fleshes Rock plans, Flowers draws line

The former Goldman Sachs financier Christopher Flowers’ firm has decided not to change his offer in the face of an intransigent Northern Rock board. Olivant's bid will allow existing shareholders to take part.

Olivant, the investment firm led by former Abbey chief executive Luqman Arnold, has revealed it plans to provide £150 million (€208.3 billion; $304.8 billion) of equity for a stake in Northern Rock, the beleaguered UK bank. It will tap the public markets for between £450 million to £650 million and parachute a management team into the Rock, according to a statement. 

JC Flowers:
Final offer

A source said separately US buyout firm JC Flowers will not rework its bid for the bank any further. The source said the US buyout firm would still bid for the bank, paying down £15 billion of the Bank of England’s loan and keeping part of the business listed. But Northern Rock’s board is concerned the shareholder component of the Flowers bid is less than required, he said. 

The bidding was moving too slowly for the buyout firm’s satisfaction and the delay meant further loans were being withdrawn from the Bank of England, he said.

One potential problem for the Olivant bid is it still does not have a firm debt financing package unlike UK billionaire Sir Richard Branson’s Virgin consortium which has tabled a preferred bid for Northern Rock. This is backed by banks Citi, Deutsche Bank and RBS, according to a source.

Olivant said its financing will be arranged by Northern Rock with the assistance of Olivant’s capital markets team, allowing it to repay £10 billion to £15 billion of the existing Bank of England’s more than £20 billion loan. Olivant would commit to repay the remaining Bank of England debt by the end of 2009.

Olivant’s proposals will allow it to issue high premium warrants for more than 7 percent stake in the company, while the Bank of England will receive warrants of 5 percent on the same terms as Olivant.

Under the proposals Arnold and Olivant chief operating officer Kirk Stephenson will join Northern Rock’s board. Arnold proposes to become executive chairman until full repayment of the Bank of England loan. Stephenson would become a non-executive director.

Arnold said in the statement he believed the bid satisfied all stakeholders including the Tripartite Authorities of the Bank of England, the Financial Services Authority and the UK Treasury, while having broad shareholder backing.

Olivant has received non-binding letters of commitment from five institutional shareholders representing approximately 23 percent of the shareholder base in Northern Rock to take up rights. The five shareholders have also said they would sub-underwrite around £440 million of the issue at or around the current market price. 

Olivant has also received letters of support from retail shareholder groups.

The deal would allow the Olivant team to start at Northern Rock with immediate effect, with debt and equity financing coming “as soon as practicable”.

Cerberus Capital Management, the US buyout firm, is also reportedly still interested in bidding for the bank.