Olivant chairman Luqman Arnold says: “Despite working intensively, we have been unable to formulate a value creation proposal which meets our investment criteria whilst also respecting HM Government’s proposed financing terms and the interests of other stakeholders in the company.”
The deadline for bids for Northern Rock was closed today at 4pm.
Reports over the weekend had suggested that Olivant might be considering pulling out of the race for Northern Rock but this has only just been confirmed this afternoon.
Olivant’s bid had been the preferred choice for Northern Rock’s shareholders as its proposal offerred more value to shareholders than the Virgin or management buyout proposals.
The Virgin consortium says its intention for Northern Rock is that it continues as a listed entity, rebranded as Virgin Bank.
It says it believes that its proposal meets all of the Tripartite Authorities’ objectives.
Virgin has proposed to lead a substantial injection of £1.25bn of new equity capital into the company. This will be structured as £500m cash injection from the consortium partners, contribution of the complementary Virgin Money business for £250m and a rights issue of £500m priced at 25p per share.
The rights issue – under which existing shareholders are expected to receive rights to subscribe for 4.7 new shares for every share that they currently own – will allow existing shareholders to subscribe capital at the same price as the consortium.
Virgin’s proposed executive chairman of Virgin Bank Sir Brian Pitman says: “We have made a proposal that seeks to stabilise the Company and rebuild it as a trusted and thriving institution under the Virgin brand with a long-term future. The proposal is a sound public-private solution for Northern Rock that will see taxpayers’ interests protected and give existing shareholders the opportunity to invest alongside and at the same subscription price as the Virgin Consortium.”
Virgin Money head Jayne-Anne Gadhia will become chief executive of Virgin Bank. The consortium claims that it has new and experienced candidates for finance director, treasury director and risk director lined up if its proposal proceeds.
The Board of Northern Rock says it has requested that the Tripartite Authorities consider providing funding for its restructuring proposal.
The restructuring proposal would combine a new equity raising of not less than £500 million, a reduction in the assets held on the Company’s balance sheet and a reorganisation of its operations.
The Board says that the restructuring proposal, once implemented in full, will result in an “independent, well-capitalised, low cost and significantly lower risk mortgage and savings bank”.
The Board plans two phases. Phase 1 would see business stabilisation, controlled reduction of the current loan book and preservation of capital within the balance sheet. It says that Andy Kuipers would take the role of deputy chief executive officer with Paul Thompson appointed as CEO.
Phase 2 would see modest growth in prime quality lending in line with the company’s ability to raise retail and wholesale funds, scope for dividends and capital returns.