Fool News: Rock Revival Stalls
The Northern Rock share price plummeted this morning as uncertainty over its future stalled the bank's share price revival.
The Northern Rock share price plummeted this morning as uncertainty over its future stalled the bank's share price revival.As of lunchtime today, the price had rallied slightly but was still worth just 220p, down 53p, or 19%, on close of play Friday.Last week, the share price jumped 72% to 273p, on the back of bid speculation and news of an approach from a Virgin-led consortium.The consortium includes several leading hedge funds and is backed by US insurance group AIG, American buyout experts Wilbur Ross, British hedge fund Toscafund Asset Management and Hong Kong investment group First Eastern. In return for an injection of capital, the consortium would get shares giving it up to 50 per cent of the business - and Jayne-Anne Gadhia, head of Virgin's finance business, would become chief executive. Sir Richard Branson said that a takeover by such a "heavy-hitting" consortium would "make a once-great British institution great again". He also emphasised that his consortium was determined to ensure the troubled lenders remained a "truly independent UK-owned" force in banking.Such a takeover would also allow the reinvented company to distance itself from the reliance on the mortgage market which has proved so ruinous, instead developing a broader base involving more deposit-account customers. However, in the wake of the proposal, a number of uncertainties have contributed to the Rock share price taking a tumble.The lender's reaction to the consortium's proposal disappointed those who hoped for a swift takeover.Northern Rock made it clear that discussions were at an early stage, and although it would continue to work with "a number of interested parties" to safeguard its future, such talks were "only preliminary".It did not confirm the identity these `parties', although JC Flowers and Cerberus are already known to be bidders and others taking an interest are thought to include private equity groups Apollo, Blackstone and Lone Star, as well as National Australia Bank and Barclays Capital. Shareholder fears have also been fuelled by speculation that in the event of a takeover, shareholders might receive a very low price for their shares.Analysts at Credit Suisse Group have predicted that Virgin would at least double the number of shares in a bid for the lender - and has cut the share-price estimate for the stock from 390 pence to 180 pence.Many shareholders are also conscious of the fact that the Treasury guarantee which helped revive the Rock's share price came with a time limit. Under European Commission rules, underwriting customer deposits in this way counts as `rescue aid', and as such can only continue for six months.If takeover proposals have not been finalised when the guarantee is withdrawn, savers may again fear losses and swarm in thousands to withdraw their cash.And any buyer taking on Northern Rock's responsibilities faces a huge re-financing challenge. The lender has already received some £13 billion from the Bank of England, to be paid back at a punitive rate.