Olivant set to seize on frustration with Virgin in Northern Rock bid

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The Independent Online

Luqman Arnold's private equity firm, Olivant, believes it now has the all-clear to put together a proposal to rival Virgin's preferred bid to buy Northern Rock as shareholder frustration with the Virgin deal mounts.

Olivant met the Tripartite Authorities – the Treasury, the Bank of England and the FSA – on Monday night. It is understood that Olivant was assured that Northern Rock would give it access to financial information needed to submit a firm proposal.

Olivant also laid out its plan to inject equity into Northern Rock and the auth-orities were said to have understood and approved of the structure.

The authorities are said to have confirmed that the funding available to Virgin from Citigroup and Royal Bank of Scotland to pay off £11bn of debt to the Bank of England will be provided to other bidders if successful.

Olivant is said to be unhappy about Rock's apparent unwillingness to give it information or consider its plan. Olivant proposes keeping the company going under its own name, raising money from existing shareholders and putting Mr Arnold in as chief executive.

"It was a very encouraging and constructive meeting with the Tripartite Authorities," said a source close to Olivant. The firm will probably submit a detailed proposal next week.

The Tripartite Authorities will continue to meet prospective bidders separately from Northern Rock's advisers as the Government looks for the best way to get the Bank of England's money back. Alistair Darling, the Chancellor, wrote to the Treasury Select Committee on Monday saying the Government would keep all options open.

The Government has asked the European Commission to approve the initial assistance provided to Northern Rock under its state-aid rules. The Virgin deal, and one structured like it, would probably not fall foul of the commission's limits on state aid as it would be on commercial terms.

Many shareholders are angry about the board's preference for Virgin's proposal, which would see investors' holdings diluted in a rights issue and Virgin taking control of the business under its own brand. Virgin's offer would require 50 per cent shareholder approval and some investors are trying to co-ordinate a response to block the deal if a better offer does not come in.

SRM and RAB Capital, the bank's two biggest shareholders, have called on the board to hold an extraordinary meeting to approve a resolution that would give shareholders a vote on any sale of more than 5 per cent of Northern Rock's assets. SRM said yesterday that it had increased its stake in Northern Rock to 8.5 per cent from 6.84 per cent last week. Northern Rock's shares rose for the third day running, closing up 7.8 per cent.

Mr Arnold is best known as the man who took the helm at Abbey National in 2002 when the bank was on the verge of imploding from investments in collateralised debt obligations (CDOs) and other risky assets. His critics say he did not prove himself as a retail banker before selling up to Santander of Spain.

Bloomberg has reported that Bradford & Bingley had put in a proposal to buy some of Northern Rock's assets.

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