2.21 Northern Rock and its advisers approached a wide range of potential bidders, exploring both a whole and a partial sale. At the Treasury's direction, Goldman Sachs worked with the company's advisers and any bidder who asked to do so was able to meet the Treasury to discuss the Tripartite Authorities' position. Northern Rock's advisers, however, remained responsible for investigation of the alternatives available to the company and communication with possible bidders. The company set a deadline of 12 October 2007 for the submission of expressions of interest.
2.22 On 12 October, initial expressions of interest were received from 14 potential bidders. Further discussions were also held with Lloyds TSB which focused on the potential execution and legal risks of a potential takeover of the company, but the discussions were inconclusive. At the end of October, following a change of Chairman, Northern Rock appointed Blackstone as a restructuring and financial adviser to the sale process.
2.23 On 2 November 2007, Northern Rock issued an information memorandum and a process note to all those expressing interest, inviting them to submit non-binding proposals for the whole or any part of the business by 16 November 2007. The documents were prepared by Northern Rock with assistance from its advisers but were not approved by the Treasury, although the Treasury commented on them at a relatively late stage in their preparation. Separately, the company also conducted a process to identify prospective providers of finance, recognising that each of the potential bidders would otherwise be approaching the same range of banks for debt funding in what were difficult market conditions.
7 | Chronology of the sale process after the emergency support had been provided |
Month* | Date | Actions |
September 2007 | 17 | Lloyds TSB withdrew from discussions on Northern Rock. |
| 18 | Northern Rock initiates a revised sale process, retaining responsibility for investigation of the market and communication with possible bidders. |
| 21 | Treasury appoints Goldman Sachs and Slaughter and May as its financial and legal advisers. |
| 25 | Lloyds TSB shows further interest in acquiring Northern Rock but decides not to take it further. |
October 2007 | 9 | Extension of Bank facility and Treasury guarantee arrangements announced. |
| 12 | Northern Rock receives 14 expressions of interest in purchasing Northern Rock or elements of it. |
November 2007 | 2 | Northern Rock issues an Information Memorandum to the interested parties. |
| 16 | Northern Rock receives 10 non-binding bids for the company or elements of it. |
| 19 | The Treasury publishes the Tripartite Authorities' Transaction Principles. |
| 19 | A further run on Northern Rock's retail deposits begins. |
| 26 | Northern Rock announced that it would take forward the Virgin Consortium's bid on an accelerated basis. |
December 2007 | 6 | JC Flowers withdraws from the sale process. |
| 7 | A detailed proposal is received from Olivant. |
| 18 | Further Treasury guarantee arrangements announced. |
| 21 | Northern Rock management presents its own plan for the restructuring of the company. |
January 2008 | 16 | A further proposal is received from Olivant. |
| 21 | A new financing structure is announced, and five companies plus Northern Rock's management team are approached. |
February 2008 | 4 | The Virgin Consortium and Northern Rock's management submit bids for the company. Olivant withdraws from the bidding process. |
| 16 | After consideration of the bids, "final and best" proposals are received from the Virgin Consortium and Northern Rock's management. |
| 17 | The Treasury announces that Northern Rock is to be taken into temporary public ownership. |
Source: National Audit Office analysis of Treasury records | ||
2.24 Figure 8 shows the non-binding proposals received by 16 November 2007. All the proposals for the whole company offered the likelihood of a partial repayment of the emergency support with the remainder repaid as part of a planned reduction in the size of the balance sheet over a three-year period. The proposals also required government support in the form of a continuation of all or part of the guarantee arrangements until the company's credit ratings recovered. The proposals for parts of the company were less developed and the Treasury considered that a disposal of part of the business or certain of its assets would have left lower quality assets with Northern Rock, which would be difficult to sell.
2.25 The initial offers of finance for a sale of the whole company were not regarded by the Tripartite Authorities as attractive. Potential funders' proposals provided for lending against prime residential assets and with a low average loan-to-value ratio. In addition, the proposals were on terms and interest rates which were not compatible with the business plans put forward by the potential bidders. In Goldman Sachs' view, the inability to raise sufficient finance was partly because of serious concerns about Northern Rock's business, but mostly due to the distressed state of the financial markets at the time.
2.26 Nevertheless, the Treasury's initial assessment in November 2007 was that the sale of the whole company was likely to be the best option, with the next best option being public ownership. In response to requests from some bidders for greater clarity on the role and objectives of the Tripartite Authorities in any transaction, the Treasury published a statement of principles on 19 November, as shown in Box 2, explaining how it would approach proposals for the future of the company. The principles stated that the Tripartite Authorities would prefer a sale of the whole company to a partial sale and that bids which minimised public sector funding would be preferred. The Treasury also indicated that if bidders found it difficult to raise finance, a matched amount of public sector funding might be made available on similar terms to any funds raised in the private sector.