What Price Northern Rock?

Posted on Wednesday, 19 September 2007. Filed under: Business History, Commentary |

How low can it go?  That’s the question on the minds of many about the bid price for a buyer of Northern Rock.  Of course, bid prices can be negotiated upwards, but the initial bid does set a floor of sorts on the transaction.

Check out Interactive Investor and their commentary today by Richard Beddard on the topic (quoting us), entitled ‘From bail-out to buy-out’ and

A popular assumption is that somebody’s going to buy Northern Rock, or its assets and that, along with the various guarantees offered by the Bank of England and the government, must be informing the decisions traders are making.

According to Citywire on Monday, broker Keefe, Bruyette & Woods has valued the bank at 475p a share, “somewhere between its net asset and run-off values”. I put that figure to Professor Scott Moeller, a mergers and acquisitions expert at Cass Business School and fellow blogger.

He says the price depends on the nature of the buy out. Whether there is a strategic buyer, which he thinks is increasingly unlikely (I presume a strategic buyer might pay a higher price), or whether the buyer is after the distressed assets (”more likely now”). “I’ve heard some numbers around 185p/share in that instance.” He says, “It’s a moving target”.

As I write, the share price is 280p, so despite all the guarantees it seems to me trading in NRK is still speculative, and the ‘floor’ under the price could be lower than some traders expect.

That’s just my view, though. Scott wrote an article for the BBC on the potential for a carve up at NRK on Monday.

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2 Responses to “What Price Northern Rock?”

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“broker Keefe, Bruyette & Woods has valued the bank at 475p a share, “somewhere between its net asset and run-off values”. ”

Would that be the same Keefe, Bruyette & Woods who said in Citywire ..”10th August 2007 note to Investors…”Investors in the banking sector should look to Northern Rock and HBOS for both value and growth, according to specialist broker Keefe, Bruyette & Woods.”

I only ask out of curiosity – but then there may well be two Keefe, Bruyette & Woods’.”

Lordpatel, I am only aware of one Keefe, Bruyette & Woods. And yes, there are definitely some analysts who are wishing they hadn’t written what they did a few weeks or months ago…


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