Friday, 15 February 2008

Virgin's Bid to be blocked

Northern Rock’s leading shareholders are preparing to vote down a rescue proposal from Sir Richard Branson's Virgin Group despite the looming threat that the beleaguered mortgage bank will be nationalised if a deal fails. Virgin’s offer will be opposed by RAB Capital and SRM Global, the two hedge funds that are the Rock’s largest investors, who between them hold a 19.68% stake in the bank.

Legal & General Investment Management is the third-largest owner of Rock shares, with a stake of 4.79%. Together, the three investors are within a whisker of owning the 25% required to block a Virgin-led rescue. The only way the Government could bypass a Northern Rock shareholder vote would be to force the bank into administration, but that would be a legal minefield.

A final government decision on its future could come as early as this weekend. SRM has taken legal advice that has concluded that if the Government nationalises Northern Rock, it must pay shareholders the book value of the bank, estimated to be 400p a share. This runs counter to the Government’s legal advice, which states that shareholders should receive the market value of the bank, less the value of support so far offered through emergency loans from the Bank of England.

The Bank has lent about £26 billion so far and has taken an estimated £91 billion in liabilities on to its balance sheet. (source: Timesonline)

British Airways will pay $140 million (£71 million) in compensation to passengers affected by the carrier’s fixing of ticket prices after settling a class-action lawsuit in the United States. The settlement brings British Airways’ total pay-outs for conspiring to fix fuel surcharges to £338 million.

The lawsuit was brought by a US law firm on behalf of passengers who lost out as a result of British Airways and Virgin Atlantic conspiring to set the level of fuel surcharges, a supplemental fee added to air fares to cover rising oil prices.

Virgin’s action saved it from censure but British Airways was fined £121.5 million by the Office of Fair Trading for breaching competition law. The US Department of Justice fined the airline a further $300 million (£150 million) for passenger and cargo price fixing.

Virgin is thought to be paying $60 million (£30 million), but British Airways will have to pay triple damages because it did not expose the conspiracy. The size of the British Airways settlement may force it to put aside more money to pay further penalties. The airline is under investigation by European authorities for fixing cargo rates and may face a class-action suit from haulage firms.

Fifteen airlines have admitted they are part of the EU’s investigation into cargo price fixing, which also relates to the setting of fuel surcharge rates. (source: Timesonline)

Warren Buffett, the world’s second richest man, has built up an 8.6% stake in Kraft Foods, worth $4.32 billion (£2.2 billion), making him its largest individual shareholder. These shares were bought last year. It was revealed that Mr Buffett has spent $76 million (£39.37 million) on shares in UK drugs firm GlaxoSmithKline.

His investment in Kraft is being seen as a vote of confidence in the firm, which only last month posted a 6% decline in quarterly profits after it was hit by higher raw material costs. Kraft's best-known products include its eponymous cheese, Maxwell House coffee and Oreo cookies.

Mr Buffett bought the shares through his Berkshire Hathaway investment vehicle. (source: BBC News)

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