KEY POINTS:
London - Northern Rock, the British mortgage lender that sought emergency funding less than two weeks ago, said yesterday it was in takeover discussions.
Northern Rock said it had received several approaches. The talks were at a "preliminary" stage and no price had been proposed, the Newcastle company said.
It abandoned plans to pay a first-half dividend next month.
The stock has fallen 74 per cent in London since the announcement of a bailout by the Bank of England on September 14 prompted customers to withdraw at least £2 billion ($5.4 billion) in three days.
Chief executive Adam Applegarth said the independence of the bank was under threat after rising financing costs hampered its ability to make new loans.
"The challenge for an acquirer is the cost of funding the short-term debt," said Mike Trippitt, an analyst at Oriel Securities in London who has an "add" rating on the stock.
"They have to think about the financing that is rolling off and financing the existing mortgage book."
Merrill Lynch is advising the board of Northern Rock on its options. The British Government has hired Goldman Sachs to advise it on the future of Northern Rock as the possibility of a sale becomes less likely, the Daily Telegraph reported yesterday.
Northern Rock shares fell 5.2 per cent yesterday to 163.1p, valuing the company at £687 million.
Former Goldman banker Chris Flowers might join the Cerberus Capital Management and Citadel Investment hedge funds in splitting up Northern Rock, the Sunday Telegraph reported, citing an unidentified person familiar with the proposal.
Lloyds TSB Group might be working with UBS on a possible bid for at least part of the bank, the Daily Telegraph said, without saying where it got the information.
Northern Rock said "it would not be appropriate to make any interim dividend payment" until the bank could announce the outcome of takeover talks and any changes to the business model.
Northern Rock bowed to pressure from the Financial Services Authority and the Treasury to scrap the payment, the BBC reported without saying where it got the information.
The Shareholders' Association, which has 2000 members, said yesterday it would fight any plans to sell the company.
Roger Lawson, communications director of the association, said: "We would like to stop the company from being sold on the cheap in a fire sale, which is what seems to be happening."
- Bloomberg
