The bidding for Northern Rock may not be over yet, as Olivant has agreed to meet with officials from the Treasury to see if their bid can be resurrected.
The withdrawal of Luqman Arnold’s Olivant on Monday left only two bidders for the bank – the current board and Richard Branson’s Virgin-led consortium – and shares fell back as a result. The Treasury was so shocked that is called on Arnold to bring him back into the bidding.
Neither Virgin nor the current board can make full commitment to the structure of any new deal yet.
Before a bid is brought back into play a number of hurdles have to be cleared. One is the fact that the bank’s auditor – Pricewaterhouse-Coopers – has not yet signed off last year’s accounts. It is still cautious about what it can sign off.
Directors at Northern Rock have targeted major writedowns for 2007 which are in addition to those already announced. PwC, however, are thought to want to make even larger provisions – maybe over £500m – before they sign the accounts. Indeed, PwC is likely to ‘qualify’ the accounts upon release to say that it cannot be totally sure that there is nothing yet to come to light. PwC wants to avoid any comeback from shareholders or the possibility of any future legal action. This discussion on the accounts could drag on for another fortnight, which would leave bidders without much time to finalise their proposals before the regulatory deadline of the EU which is 17 March.
Chancellor Alistair Darling really needs to get a firm agreement with the preferred bidder by the end of February. Only at that point will a bidder be able to make final provision to underwrite any share issue and get a clear indication from credit agencies as to what rating it will receive on the debt.
Northern Rock profits will be squashed either way, and the likelihood of shareholders receiving any dividend will be very low for many years to come
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Mon, Feb 11, 2008
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