Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of

Northern Rock Nationalisation? My off-the-wall solution :-)

Posted by Mark Harrison on January 8, 2008

Of all the reports about Northern Rock over the last six months, the one that has consistently impressed me most is Robert Peston, of the BBC.

In the latest twist, Robert reports that SRM, a Hedge Fund who currently own about 10% of Northern Rock have written to the Government, making it clear that if the Government try to Nationalise NR at less than a “fair price”, they will sue for damages.

The story then goes on to report how SRM have arrived at a “fair price”, and how difficult it is to value failing businesses.

I have a solution. I’ve no idea whether it would hold water legally, but it has a certain “business logic” and “natural justice to it.”

I wonder whether it could apply to all “companies on the verge of nationalisation”, not just NR…

Run an auction with a twist

  • Buyers would have to demonstrate (before entering the auction) that they had the funds in place
  • The government would have the RIGHT, but not the OBLIGATION (ie an option), for 24 hours after the auction closed, to buy, at a 10% premium over the “hammer price”
  • Of this 10%, half (5% of the highest bid) would be an uplift to the price the sellers of the business received
  • The other half (5% of the highest bid) would go to the highest bidder

Why have I suggested this?

  • The purpose of the first 5% is to demonstrate, clearly, that the government is paying “fair price”.
  • The purpose of the second 5% is to make sure that potential bidders are encouraged to bid up to their highest price – because for just making the offer, and putting down no cash, they MIGHT end up with a 5% profit straight away.
  • The purpose of making it an OPTION is to  make sure that no-one over-bids in the hope of that 5% profit – there would be a good chance that the Government would leave them swinging with their over-priced asset 🙂 And, of course, to make sure that the Government only bought if they REALLY felt it was in the national interest.

Would bidders play? Asia is awash with rich financial institutions at the moment!


4 Responses to “Northern Rock Nationalisation? My off-the-wall solution :-)”

  1. Very interesting idea. Don’t think for a minute the Govt would be seen to be paying any % premium on the market. They Govt would only step in to be seen to be doing the right thing to assuade the market that Northern Rock won’t can it.

    How about making it a closed auction? More like a negotiation behind closed doors of qualified companies.

    Biggest worry is the Govt wanting to give away power – smells like the Fed Reserve sell out to me…

  2. It’s hard to see how suppliers would be persuaded to participate if they knew that the government would be able to “gazump them” without any compensation.

  3. True Mark, that’s what it would amount to – a gazump. The less Govt intervention the better. Can still remember King on TV sweating it out – trying to do the right thing by the bank but being put under tremendous political pressure. Pity he caved, would love for him to have stood up to the Govt. He paid the price for it, poor guy.

  4. RaiulBaztepo said

    Very Interesting post! Thank you for such interesting resource!
    PS: Sorry for my bad english, I’v just started to learn this language 😉
    See you!
    Your, Raiul Baztepo

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