Olivant pulled out of the bidding just fifteen minutes before yesterday’s deadline, with chairman Luqman Arnold saying that despite the Government’s new financing terms, Olivant had been ‘unable to formulate a value creation proposal which meets our investment criteria’. In other words, it couldn’t make the numbers stack up (apparently it couldn’t see how it was going to make a profit if it had to pay the Government back in three years).
Its exit leaves just two offers on the table: one from Sir Richard Branson’s Virgin Group and a rival bid from the Rock’s current management team. And with the Treasury having allegedly favoured the Virgin bid from the start – an impression fostered by Branson gallivanting around China and India alongside Gordon Brown last month – the Bearded One now appears to be in pole position to get his hands on the Rock. His plan is to inject £1.25bn into the stricken bank (including £500m of Virgin’s money, a £500m rights issue and his existing Virgin Money business) and then re-brand the whole thing as Virgin Bank.
However, the Rock’s biggest shareholders have other ideas. Hedge fund RAB Capital had consistently favoured Olivant’s bid from the start, because it put a higher value on its shares. Now that's off the table, RAB has immediately rejected the Virgin bid and thrown its support behind the management team. ‘Anyone but Virgin’ is clearly the policy as far as they’re concerned.
Either way, it’s all looking a bit grim for the Rock’s workforce. To have any hope of paying the Treasury back in three years, Virgin or the management team will have to slim down the Rock’s operations – and this is bound to mean big job cuts.
Which brings us back to the only other possible outcome: nationalisation. That would be equally bad news for RAB and its fellow shareholders, but it might help to salvage some of these jobs (assuming the EU agrees to allow it). So for the Government, it might end up looking like the best option.
And if Goldman Sachs crunches all the numbers on these latest bids and find them wanting, it might even end up being the only option...