US buyout firm JC Flowers has tabled a revised bid for troubled bank Northern Rock which provides existing shareholders with an opportunity to participate in the turnaround, according to a source close to the bid. Virgin Money’s rival bid has always had a mechanism for shareholders to share in any recovery of the bank’s fortunes.
Flowers’ repayment of £15 billion (€21.1 billion; $30.9 billion) of the more than £20 billion of loans provided to the bank by the UK Bank of England has remained constant, the source said.
Olivant is also set to table the full details of its offer this week, a separate source said. The firm is led by Luqman Arnold, the former chief executive of UK bank Abbey. Its proposal would involve parachuting in a management team led by Arnold, while the buyout firm would take a 10 to 20 percent stake in the bank. This bid is said to be favoured by some hedge funds, which have bought heavily since the bank’s share price collapsed and are thought to account for about 20 percent of the share capital.
UK Chancellor of the Exchequer Alistair Darling is encouraging Northern Rock’s board to consider rival bids, according to UK newspaper Financial Times.
The Chancellor expects a bidding war, which he hopes will secure a stronger outcome for taxpayers. Richard Branson’s Virgin Group, in a consortium including distressed debt investor WL Ross, has offered to repay £11 billion to the Bank of England upon completion of the deal.
The UK Chancellor has said he holds a veto over any bid as the main lender to the bank. The Bank of England provided emergency funding to Northern Rock after its credit lines were cut in the wake of global money markets foreclosing this summer.
The Virgin/WL Ross consortium plans to rebrand the business as Virgin Money and has invited existing shareholders to participate by providing half the equity at £0.25 per share.
The deal is the preferred bid by Northern Rock’s board.
Darling considers the Flowers bid to be “approved” as it meets the Treasury’s principles of the sale, according to the FT.
US buyout firm Cerberus has also tabled a bid for the bank, according to the FT.