Northern Rock shares plunge as bid comes in
Private equity firm JC Flowers today submitted a bid for Northern Rock under which investors in the troubled bank would receive almost nothing for their shares.
Sources close to the company confirmed this afternoon that it has proposed to pay only a "nominal amount" for the company, and inject around £1bn to refinance its balance sheet and fund a new business plan. It is understood that this business plan could involve job cuts.
If successful, JC Flowers would immediately repay £15bn of the emerging funding provided by the Bank of England, cutting the loan to below £10bn. According to those familiar with the bidding process, this is the highest repayment proposed by any of the prospective bidders, which include Virgin Group and investment group Olivant.
David Buik of Cantor Index said this afternoon that the plan was "by far the most plausible proposal so far".
JC Flowers has assembled a heavyweight team of experienced City executives to run Northern Rock. Paul Myners, the former chairman of Marks & Spencer who is also chairman of Guardian Media Group, would chair the bank while Halford's chairman Richard Pym would become interim chief executive.
Trading in Northern Rock was temporarily suspended earlier today as shares in the troubled bank plunged below the £1 mark.
The London Stock Exchange stepped in after a slew of sell orders sent the stock slumping by 40% to a new all-time low of 60p this morning.
This followed reports that some prospective bidders are considering ditching their plans. The Times reported this morning that private equity firm Cerberus has been deterred from making a concrete bid by continued turmoil in global financial markets.
By the close the shares had recovered somewhat to 97p, valuing the Newcastle-based bank at around £410m. At its peak it was worth over £5bn, when shares changed hands for £12.50.
Yesterday Alistair Darling was criticised by opposition MPs for his handling of the crisis. Northern Rock has now borrowed at least £22bn from the Bank of England to keep it afloat, and there is concern that the taxpayer may end up out of pocket.
It emerged last night that the government is favouring a management buyout bid from Olivant, led by financier Luqman Arnold. It proposes taking only a small stake in Northern Rock. While this might guarantee jobs at the bank, a key demand made by Labour MPs representing the north east, it is unclear how long it would take for the Bank of England loan to be repaid.
Sources close to the company confirmed this afternoon that it has proposed to pay only a "nominal amount" for the company, and inject around £1bn to refinance its balance sheet and fund a new business plan. It is understood that this business plan could involve job cuts.
If successful, JC Flowers would immediately repay £15bn of the emerging funding provided by the Bank of England, cutting the loan to below £10bn. According to those familiar with the bidding process, this is the highest repayment proposed by any of the prospective bidders, which include Virgin Group and investment group Olivant.
David Buik of Cantor Index said this afternoon that the plan was "by far the most plausible proposal so far".
JC Flowers has assembled a heavyweight team of experienced City executives to run Northern Rock. Paul Myners, the former chairman of Marks & Spencer who is also chairman of Guardian Media Group, would chair the bank while Halford's chairman Richard Pym would become interim chief executive.
Trading in Northern Rock was temporarily suspended earlier today as shares in the troubled bank plunged below the £1 mark.
The London Stock Exchange stepped in after a slew of sell orders sent the stock slumping by 40% to a new all-time low of 60p this morning.
This followed reports that some prospective bidders are considering ditching their plans. The Times reported this morning that private equity firm Cerberus has been deterred from making a concrete bid by continued turmoil in global financial markets.
By the close the shares had recovered somewhat to 97p, valuing the Newcastle-based bank at around £410m. At its peak it was worth over £5bn, when shares changed hands for £12.50.
Yesterday Alistair Darling was criticised by opposition MPs for his handling of the crisis. Northern Rock has now borrowed at least £22bn from the Bank of England to keep it afloat, and there is concern that the taxpayer may end up out of pocket.
It emerged last night that the government is favouring a management buyout bid from Olivant, led by financier Luqman Arnold. It proposes taking only a small stake in Northern Rock. While this might guarantee jobs at the bank, a key demand made by Labour MPs representing the north east, it is unclear how long it would take for the Bank of England loan to be repaid.
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