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Rock plays down talk of takeover
Nick Goodway, Evening Standard15 Oct 2007
Northern Rock today urged its shareholders not to become too over-excited about the prospects of a takeover bid for the crisis-torn former building society.
The shares crashed as it tried to dampen down mounting excitement particularly after last week's revelation that Sir Richard Branson's Virgin Money is looking at a rescue takeover.
Today Northern Rock said it was "working with a number of potentially interested parties regarding proposals for a variety of potential transactions as well as developing further options to explore with new parties".
Branson made it clear on Friday that any offer from his group, which has the backing of European insurance giant AIG, would be lower than the then prevailing share price of 265p.
Nevertheless the shares rose above this to close last week at 273¼p. Today they fell 57¼p, or 21%, to 216p.
That values Northern Rock at £1.1 billion despite the fact that many observers feel that the credit crisis which has forced it to borrow more than £13 billion from the Bank of England has almost wiped out all its equity value.
Northern Rock said that it was still in talks with "selected parties" but yet again it warned shareholders that "the proposals it has received so far are preliminary in nature" and "there can be no certainty as to their outcome".
US investment funds JC Flowers and Cerberus are among those selected parties. Both are believed to have come up with plans to take over Northern Rock's loan book but do not intend to make a full-scale bid for the bank.
Virgin Money's chief executive Jayne-Anne Gadhia said the group had received a number of approaches from other potential investors in its consortium since it went public last week. These are believed to include Dubai Holding, Sheikh Mohammed Al Maktoum's private investment vehicle.
Adam Applegarth, chief executive and Matt Ridley, chairman of Northern Rock, are set for a grilling by MPs tomorrow when the face the Treasury Select Committee.
Its deputy chairman, Conservative Michael Fallon, said: "Three quarters of their money was raised on the wholesale financial markets and we need to know why it didn't occur to them to consider what would happen if the markets closed or dried up as they did in early August."
In the wider global credit crunch, some of America's largest investment banks are today expected to launch an $80 billion fund to buy up financial assets which have become almost unsaleable during the crisis.
Citigroup, Bank of America and JP Morgan will collectively put up the guarantees behind the "Single-Master Liquidity Enhancement Conduit".
This fund will buy assets from structured investment vehicles, the specialist units set up to invest in corporate bonds and sub-prime mortgages.
The credit crunch has seen the prices of such assets spiral downwards in the past few months.
Stockbroker Collins Stewart set a price target for Northern Rock shares of just 130p and described them as a "sell".
Panmure Gordon has a target of 100p and also recommends selling the shares.
Credit Suisse cut its price target from 390p to 180p saying the Virgin consortium would pay substantially less than the current share price.
