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....

Regulators - The Blind Leading The Blind?

It's always amusing to poke fun at the regulators but it is twice as much fun when industry 'experts' add to the cock up.

I have always been told that the definition of an expert is 'ex' as in 'has been' and 'spurt' as in a 'drip' under pressure. This may be a little harsh but when the lunatics are taking over the asylum it's time to get concerned

On Tuesday October 10th, Europe’s second-largest hedge fund mistakenly exposed its large-scale shorting of shares in Northern Rock, the troubled bank, after a miscommunication with the Takeover Panel.

GLG Partners, a $19 billion (£9 billion) fund manager, told the London Stock Exchange that it had failed to make trading disclosures between September 26 and October 5.

The hedge fund manager blamed “human error” for its lapse and disclosed that it held short positions on more than 3 per cent of Northern Rock stock via contracts for difference. It is thought that up to 50 per cent of Rock’s stock is currently being shorted. In a farcical series of events, it is understood that GLG told the Takeover Panel of its activities on Monday night and that the Panel told it to 'alert the market as soon as possible'.

I completely understand the Panel's involvement in the Rock but I can't understand why GLG thought they needed to declare. Forgive me, but the clue is in the name 'The Panel of TAKEOVERS and Mergers'. How a short position could be seen as a takeover move is a stretch.

I am aware of reporting rules when certain holding thresholds are reached and reports of holdings over 1% are being submitted regarding the Rock, but on a short? Effectively the position is netted off with a short being offset by the necessity to buy the shares back. So how could this possible come under the remit of the Panel?

This cock-up is made all the more amusing as Sir Howard Davies, the former Financial Services Authority chairman is on GLG's advisory board....

The problem is regulators have been jumpy about trading in bank shares during recent market turmoil, amid fears of insider dealing. Philip Richards, co-founder of RAB Capital and the biggest shareholder in Rock, last month attacked some rival hedge funds for fomenting panic about Rock and accused the Financial Services Authority (FSA) of failing to regulate trading in its shares.

The FSA has taken just one notable disciplinary action against market abuse. In August 2006 it fined GLG and Philippe Jabre, the former managing partner, £750,000. GLG has also been fined by French and American regulators in the past 14 months.

This reporting farce does highlight, however, that the PTM have some fools working for them who don't even know their own rules and GLG need to hire guys that have actually taken some corporate finance exams...

Guys, I will help you out for a few shekels....