Whitewash at Northern Rock?

15th October

As of writing troubled Northern Rock was falling like the proverbial stone, down 23% on news that the bank are in preliminary talks with bidders. The problem however, is that it appears potential bidders are talking about buying the bank under the 'whitewash provisions' of the UK takeover rules.

Under the Panel of Takeovers and Merger rules any bidder who gains over 30% of the issued capital of a company is obliged to make a full bid for the remaining shares in the company. A bidder and the company can apply to the panel for a waiver of these rules, generally because it is a 'rescue deal'.

Of course any stabilisation of the company at present would be good news indeed for the shareholders. However, there maybe an outflow of money from the shares because it is likely that any bidder would seek to buy holdings from large holders and could end up controlling the business with only 30% of the shares. There have been well publicised purchases of blocks of shares in the company at levels significantly lower than the price as of Friday which may lead speculators to think that this is a done deal with some of the institutions who bought into the company at those levels.

Most speculators have bought into the company on the basis that a takeover would be a full bid for the entire company and not a 'partial' takeover under the whitewash provisions. One would imagine that a full bid would be the most acceptable to shareholders.

With the hyper sensitive nature of trading in this company at the moment, one would imagine that the company will aim to qualify what is a poorly thought out statement. I understand the need to keep the market informed and this announcement of a possible whitewash is good disclosure, however one would have thought that it warranted further clarification. More volatility in the price is going to make a deal harder to do..

One thing is for certain, with the potential of a whitewash thrown into the mix, speculating in NRK is not for the faint hearted....