Northern Rock Shares Rise on Takeover Discussions
Northern Rock Plc rose today in London trading after the U.K. mortgage lender, which sought emergency funding this month, said it was in takeover talks.
Northern Rock shares gained 12 percent to 182 pence. The Newcastle, England-based bank said after the close of trading yesterday that it had received several approaches. Talks are preliminary and no price has been mentioned, it said.
The stock has fallen 71 percent since the announcement of a bailout by the Bank of England on Sept. 14 prompted customers to withdraw at least 2 billion pounds ($4 billion) in three days. The U.K. government is pushing for a quick sale that may undervalue the company, said Philip Richards, chief executive officer of RAB Capital Plc, the bank’s biggest shareholder.
“Shareholders are being sold down the river,” Richards said in an interview. Hedge-fund manager RAB bought more than 6 percent of Northern Rock’s shares last week for its special situations fund. “The only reason we are even talking about a fire-sale at numbers below 6 pounds a share is because the government is putting this under enormous pressure.”
Northern Rock yesterday canceled a 14.2 pence a share dividend planned for next month. The lender said as recently as Sept. 14 that it still intended to make the payment.
Merrill Lynch & Co. is advising the board of Northern Rock on its options. The U.K. Treasury hired Goldman Sachs Group Inc. to advise it on the future of Northern Rock, the Daily Telegraph reported yesterday. The New York-based firms restricted research coverage of Northern Rock today, citing their roles as advisers.
Possible Bidders
“There’s absolutely no guarantee any bid will be forthcoming and that it would be above or even at the current share price,” analysts at Credit Suisse wrote to clients today. “It’s obviously better than if there were no interested parties, and indeed several approaches might create some price tension.”
Former Goldman banker Chris Flowers may join the Cerberus Capital Management LP and Citadel Investment Group LLC hedge funds in splitting up Northern Rock, the Sunday Telegraph reported Sept. 23, citing an unidentified person familiar with the proposal. Lloyds TSB Group Plc may be working with UBS AG on a possible bid for at least part of the bank, the Daily Telegraph said Sept. 19, without saying where it got the information.
“A private-equity takeover seems the more likely option today,” Collins Stewart analyst Alex Potter, who has a “sell” rating on the stock, wrote in a note to investors today. “It could come below market prices.”
Rival Shares
Northern Rock credit-default swaps fell 55 basis points to 115 basis points today, according to Deutsche Bank AG. The contracts, used to protect debt from default and speculate on credit quality, rose to 210 basis points after the bailout.
Northern Rock’s shares may be worth anything from nothing to 357 pence, according to research published today by Bear Stearns Cos. The stock rose as high as 1,251 pence in February.
Richards, who runs RAB Capital’s $2 billion special situations fund, said Northern Rock’s shares should trade at about 600 pence, taking into account a book value of about 400 pence a share and 1 percent of the value of the mortgage holdings.
Rival U.K. mortgage lender Bradford & Bingley Plc rose 4.4 percent to 291.25 pence and Alliance & Leicester Plc increased 3.4 percent to 733 pence in London trading.
Financial institutions made no bids today for the 10 billion pounds of three-month loans that the Bank of England offered to ease strains in the money market, the central bank said. The cash was offered at a minimum rate of 6.75 percent, 1 percentage point above the Bank of England’s benchmark.
Third European Bailout
Northern Rock’s share of U.K. mortgage lending rose to 18.9 percent at the end of June from 12.2 percent a year earlier. That forced it to tap markets for short-term cash to fund long-term mortgages. Northern Rock is the third European bank to seek a bail-out since the collapse of the U.S. subprime mortgage market triggered rising credit costs.
German government-owned agency KfW on July 29 led a 3.5 billion euro rescue of Dusseldorf-based lender IKB Deutsche Industriebank AG. Landesbank Sachsen Girozentrale, a state-owned lender based in Leipzig, Germany, got 17.3 billion euros ($23.5 billion) in credit on Aug. 17 from German state-owned banks to repay debt from a unit that invested in bonds including U.S. subprime mortgages.