The Olivant solution, submitted on Friday, champions a ‘company-led process’. It wants to install Arnold as executive chairman and inject £150m of equity in exchange for a small minority stake (‘putting some skin in the game’, as Warren Buffet would say). There would then be a £650m rights issue at the current market price, mostly under-written by existing shareholders like hedge fund RAB. Next, it would pay back up to £15bn of the £25bn borrowed from the Treasury, funded by a few big banks, committing to repay the rest by 2009. And then it would get busy turning the Rock around.
Arnold’s proposal has a lot going for it. He could start on Monday morning if he wanted to, and his turnaround job at Abbey makes him better qualified to revive the Rock than virtually anyone on earth. The Bank of England can buy into the rights issue, so the taxpayer might even see some upside. And because his plan is based on operational management, he’s placing a higher value on the existing equity – which is likely to give him the backing of shareholders (with the Virgin deal that’s currently on the table, their equity is practically worthless). And of course, the Rock brand would be saved.
On the other hand, he’s putting in half as much equity as Virgin, and he doesn’t have anything like the same level of brand awareness – even if he is an old hand at this kind of thing. The Rock’s board is also sceptical, according to reports.
After JC Flowers pulled out on Thursday, saying that it just couldn’t find a way of making the deal work in the current climate, the government will probably be pleased that Virgin isn’t the only show in town. But with doubts remaining over Olivant’s financing, and shareholders in revolt against the Virgin plan, none of the private sector options look particularly great. And as long as the situation is shrouded in uncertainty, the Rock's customers will keep taking out their deposits like there's no tomorrow (£200m a week at one stage, apparently).
So don’t start betting against nationalisation just yet...