Northern's shares slumped to 897p on the stock market, 203p below the value of Trafalgar's cash bid as dealers wondered whether the news might prompt Trafalgar to pull out or substantially reduce its offer.
Northern moved swiftly to recommend to its shareholders an offer it had fiercely resisted. A source close to the company said Prof Littlechild had "taken the legs from under Northern". leaving it little alternative but to recommend.
There was speculation that Trafalgar might take advantage of the lower stock market price to launch a market raid. The last day for accepting its £11-a-share cash alternative offer is on Friday.
Terms of the bid allow Trafalgar to withdraw if it cannot reach a satisfactory arrangement on new licence conditions for Northern. It was generally accepted that yesterday's announcement from Offer would provide just such a get-out.
Alternatively Trafalgar might try to persuade the Takeover Panel that circumstances have changed so dramatically that it should be allowed to lower the value of its bid.
Initial soundings with Trafalgar revealed a willingness to continue, but as the day progressed, advisers became increasingly concerned about the implications of the new price review. "It must devalue the bid by at least £2 a share," said one.
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