KEY POINTS:
LONDON - The battle for control of Northern Rock will intensify this week.
Olivant, the investment vehicle run by former Abbey National chief executive Luqman Arnold, is expected to submit its offer for the ailing bank in a move to rival a bid by Virgin Group.
It is believed JC Flowers, the US private equity group, is also preparing to submit a revised proposal this week, after an initial approach was deemed inferior to the offer by Virgin.
Olivant held talks with banks over the weekend in a bid to secure the financing to press ahead with an offer for Northern Rock. Executives close to Olivant were confident that it would be able to find the required £10-£12 billion ($27-$32 billion).
One banker said: "If Virgin can get the financing, then Olivant should be able to as well." Virgin's bid has already won Treasury approval.
Arnold met with senior officials from the Bank of England, the Treasury and the Financial Services Authority last week and has convinced them that his offer has merit. Olivant wants to take a large minority stake in Northern Rock and run it as a going concern. Virgin wants to buy the bank outright, a move that will see shareholders in Northern Rock lose out.
Virgin has promised immediately to pay back £11 billion to the Bank of England, which has issued Northern Rock with £26 billion in loans.
Investors in the bank are supportive of Arnold's plans to run Northern Rock as a going concern. Hedge fund SRM, with a 9.1 per cent stake, and RAB Capital, with 6.66 per cent, are opposed to the Virgin bid.
The Virgin consortium is offering to put in £1.3 billion of funds into the Rock in return for a stake of at least 55 per cent, with some of the funds raised by offering shareholders further shares at a discounted 25p each.
The deal is thought to value Northern Rock at about £225 million - a fraction of the £5.2 billion value seen in February before the crisis hit. Olivant's bid is more attractive to shareholders because they would benefit if it stabilises the bank.
JC Flowers, seen last week as a frontrunner in the race to buy Northern Rock, threatened last week to pull out. A report said the US private equity group may abandon its bid after becoming frustrated that the Treasury was unwilling to meet its advisers.
The Government wants all the money it lent to the Rock to be repaid and shareholders to be offered exposure to any turnaround.
THE PLAYERS
* Virgin Group: Has offered to put £1.3b into Northern Rock in exchange for a 55 per cent stake.
* Olivant: Expected to make an offer after talking with banks to secure funding.
* JC Flowers: Expected to make a revised proposal this week.
- Independent
