B&B shares rally on back of Resolution interest

Jun 24 2008

Bradford & Bingley shares raced ahead today on news that Liverpool-based investment firm Resolution has teamed up with a raft of the bank’s shareholders to challenge its fundraising plans with a £400 million alternative proposal.

The specialist buy-to-let lender rejected Resolution’s approach, which could see the group take a stake of more than 30% in the bank.

But shares in the troubled bank rallied by 15% at one stage as the market cheered the prospect of an alternative to the deeply discounted rights issue and stake sale to US private equity firm Texas Pacific Group (TPG).

Resolution said late yesterday that B&B institutional investors owning around 14% of the company - Standard Life, Legal & General, Prudential and Halifax Bank of Scotland’s investment arm Insight - had invited it to table a fundraising proposal for the bank.

The move would form part of a £2 billion move by Resolution to snap up smaller banks and merge them to create a larger and stronger group, although the group maintains that it is not seeking to take over B&B.

B&B shareholders are understood to be angry at the lender’s decision to bring in TPG, a move which will dilute the value of their existing holdings.

The bank is proposing to sell a 23% stake to buyout group TPG and ask investors for £258 million in a rights issue. It is due to publish a prospectus on its cash call this week, ahead of a shareholder meeting on July 7.

The company said today it “carefully considered” the Resolution approach, but added it could not recommend the proposal to shareholders in its current form.

TPG welcomed B&B’s continued support for the deal and said it remained “fully committed” to its investment.

Resolution is aiming to table a formal proposal by July 4, before B&B’s shareholder meeting.

The interest from Resolution is the latest twist in the battle to bail out B&B, which has been hit by the turmoil in the housing and financial markets.

Earlier this month B&B reduced the amount it was asking shareholders for and slashed the discount price after a profits warning threw the rights issue scheme into doubt.

Resolution boss and financier Clive Cowdery, who made his name by consolidating closed funds in the life insurance sector, already owns a 2.9% stake in B&B, it emerged yesterday.

He relaunched investment vehicle Resolution earlier this year with the aim of buying and consolidating smaller banks and lenders in the UK banking sector since his insurance company - also called Resolution - was sold to Pearl.

It is thought that mortgage banks such as Alliance & Leicester and Northern Rock could also be in his sights for consolidation.