Hedge fund seeks to head off Rock bid

by Richard Kilner

Story link: Hedge fund seeks to head off Rock bid

SRM Global, the leading shareholder of beleaguered bank Northern Rock, has added to its stake for the second consecutive day, building pressure on the favoured status conferred on Virgin Group’s bid by the bank.

SRM’s stake in the firm has increased from 8.5% to 9.1%. A day earlier the hedge fund had increased its share from 6.84% to 8.5%.

The stakeholder said it has purchased 2.5 million more shares, each valued at 114.7p.

Jon Wood, who manages SRM Global, is well-known for his £100m Gadget Shop legal clash with Sir Tom Hunter and Chris Gorman in 2005.

Since the Virgin consortium was acknowledged as the bank’s bidder of choice Northern Rock’s shares have increased day by day. Yesterday they finished with a rise of 1.68% to a value of 120.7p per share.

The ever increasing stake that SRM is gradually accumulating is seen as a strong sign Wood does not want the bank to be sold for a price substantially beneath its actual value.

Northern Rock’s second largest stakeholder is also a hedge fund, RAB Global, which is similarly unimpressed with Virgin’s bid, seeing it as being too low.

It is currently unclear as to whether or not RAB will make similar moves to SRM and seek to increase its share of the bank in an effort to see off the Virgin bid.

An insider has stated that the prospect of a cheap bid being rubber stamped by the government to eliminate a politically damaging situation has irritated the hedge funds.

There are reports that a rival bid by Olivant, led by Luqman Arnold, have been promised equal access to Northern Rock information by the relevant authorities, (the FSA, Bank of England and Treasury), although the Treasury was unwilling to comment about the matter.

Olivant’s bid is not for a full takeover. Instead, they wish to buy a minority stake and introduce a team of banking experts to work alongside the current management to attempt to salvage the ailing bank.

The Treasury have, however, confirmed that nothing is being ruled out at this stage, and cited commercial sensitivity as the reason behind its failure to confirm or deny that Olivant would get the same information as Virgin.

Virgin plan to invest £1.3bn into Northern Rock, in return for 55% of the shares and offering present shareholders discounted shares at a cost of just 25p each.

Such a deal would place the bank’s value at £225m, a colossal fall from its £5.2bn value as recently as February of this year.