Northern Rock bowed to pressure yesterday from its two biggest shareholders, finally announcing an extraordinary general meeting to vote on resolutions to restrict the board's freedom to do a deal.
SRM Global Master Fund and RAB Capital, which own about 17 per cent of the bank between them, have put forward resolutions that would prevent the board from selling 5 per cent of the bank's assets or issuing shares for more than 5 per cent of the bank's share capital without shareholder approval. If passed, the measures would place extra restrictions on the bank's ability to agree a deal with Virgin Money, its preferred bidder.
SRM and RAB are concerned that the board is susceptible to political pressure to do a quick deal. The Treasury is heavily involved in discussions to decide Northern Rock's fate after the Bank of England lent it more than 25bn and the Government provided guarantees covering almost all retail and wholesale liabilities. The hedge funds have received support from other institutional shareholders they have spoken to.
Northern Rock has spent the past two weeks trying to persuade the funds not to press their resolutions. The bank recommended that shareholders should vote against the resolutions because they would restrict the board's ability to make quick decisions on the bank's fate. It plans to recommend a bidder to the Treasury and the other authorities by the end of January.
Bryan Sanderson, the chairman of Northern Rock, said: "The resolutions... restrict the ability of the company to act in a timely and appropriate manner during a period when the board is likely to need maximum flexibility. I believe that these resolutions are unnecessary and, in view of the difficult and challenging circumstances currently affecting the company, potentially damaging."
SRM and RAB support the bid proposal put forward by Olivant, the private investment company headed by Luqman Arnold, who wants to buy a 15 per cent stake in Northern Rock and take over as executive chairman without a change of control. The funds and other institutional shareholders have offered to underwrite Olivant's proposed 440m rights issue at or around Northern Rock's prevailing share price.
They oppose the proposal from Sir Richard Branson's Virgin Money consortium, which wants to buy 55 per cent of Northern Rock at 25p a share. SRM and RAB have been building their stakes in the bank this week to put pressure on the board.
The meeting will take place on 15 January at Metro Radio Arena in Newcastle.Reuse content