Northern Rock reveals flotation plans

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The Independent Online
Northern Rock, the UK's eighth largest building society, yesterday joined the growing throng of societies shedding their mutual status as it announced plans to seek a stock market listing and give its one million members free shares worth up to pounds 1,000 each.

The society's plans were greeted with surprise by analysts, who queried whether Northern Rock, valued at about pounds 1bn, was large enough to fight off potential predators and flourish in an increasingly competitive financial environment.

Christopher Sharp, managing director at Northern Rock, argued, however: "We are no more vulnerable to the possibility of a takeover now than we would be if we remained as a mutual.

"We believe we are proposing a structure that better suits our vision of what a modern-day specialised mortgage lender would be, which will help us provide better value for money for our customers."

He said that once it became a bank, the society would continue to play to its existing strength in the mortgage and savings market, without aiming to become a broader-based provider of financial services.

About 750,000 savers and 250,000 borrowers will be balloted on the plans, probably in April next year, with conversion formally taking place in October.

To qualify for a vote, members must have opened an account by yesterday containing at least pounds 50, but which must be topped up to at least pounds 100 by the end of the year.

As part of its continued commitment to the North-east, where the society has a very strong presence, Northern Rock said it will be setting up a charitable foundation when it floats, to which it will covenant 5 per cent of its annual pre-tax profits.

The foundation will also receive non-voting, non-dividend-paying shares, with the option of converting into 15 per cent of the ordinary share capital of the new company.

Terry Eccles, managing director at JP Morgan, the merchant bank that has worked on the flotation, said the foundation shares were not intended as a "poison pill" to frustrate any rival bidder. The foundation's covenant will prevent that from happening and only convert upon takeover, he said.