Bradford & Bingley said last month that it would plug the holes in its balance sheet by selling £179m of new shares to private equity group TPG – and although existing shareholders will also get the opportunity to buy £258m of new shares, some of them were furious that they wouldn’t get first dibs on all the new stock. Now four of them are fighting back: Standard Life, Legal & General, M&G and Insight are backing a plan to sell a stake instead to Resolution, Clive Cowdery’s investment vehicle, and using this as a platform to roll up several small UK mortgage lenders.
The details of the deal are a bit hazy at the moment, but the basic idea seems to be that the four shareholders pump in £400m of their own money and put Resolution (which already owns a 2.9% stake) in charge. They would then invest £2bn over the next few years to buy up three to five small lenders and merge them all into a bigger bank – which would be better placed to come up smiling at the end of the current downturn.
Cowdery has form. After launching Resolution with £500,000, he built it up by consolidating lots of so-called zombie funds (closed life insurance funds) – before selling up to Hugh Osmond’s Pearl group for £5bn earlier this year, making pots of cash for shareholders (and himself) in the process. So you can see why they like him. True, he has no great track record in this sector - unlike TPG - but they obviously think that he can pull off the same trick.
And there are advantages for shareholders – which explains why B&B’s share price shot up 16% this morning. First and foremost, it avoids selling a 23% stake to TPG on the cheap (presumably the Resolution deal will be on better terms, if it’s going to have any hope of succeeding). It could also avoid the need for an expensive rights issue – which is due to cost £37m in fees, most of which will go to the underwriting banks (it would need to pay a £1.8m ‘break fee’ to TPG, but that’s relatively small potatoes). Plus the consolidation plan might leave the bank better placed to recover.
So far, so good. Sadly though the B&B board seems unwilling to play ball, arguing that it will only bring further uncertainty to the troubled company. It said in a statement that it couldn’t recommend the proposal in its current form, which would effectively involve ceding control without any kind of takeover premium (and possibly the end of the B&B brand?). Particularly since there's no obvious reason why Resolution should make a better job of this roll-up than TPG would.
Still, at least Cowdery might now be able to smoke out some more supporters – and at least it might mean another option for shareholders to vote on. After the year they’ve had, that will be a welcome bit of good news...