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Herbert Smith client JC Flowers has pulled out of the auction for stricken mortgage lender Northern Rock.
This morning (7 December), rival bidder and Sullivan & Cromwell client Olivant submitted a revised proposal for the Newcastle-headquartered bank.
US private equity house JC Flowers, which specialises in distressed debt, had made two offers for Northern Rock.
JC Flowers will reportedly leave its bid on the table but will not participate in the auction for Northern Rock.
Its revised offer proposed to immediately repay £15bn of loans from the Bank of England (BoE) and inject £1bn of equity.
Herbert Smith's instruction by JC Flowers came off a recommendation by Credit Suisse. Corporate partner Anthony Macaulay was leading the team.
The remaining bidders are the Virgin-led consortium, advised by Allen & Overy (A&O), and Olivant.
The tripartite authorities of the Treasury, the BoE and the Financial Services Authority (FSA) labelled the consortium as its preferred bidder a fortnight ago.
Meanwhile, Olivant is not making an offer for Northern Rock's shares. Instead, Olivant is proposing that its founder, City veteran Luqman Arnold, work alongside the bank's current management, in return for the investment group taking a minority stake in the bank at around 15 per cent.
Today's revised proposal by Olivant promised to immediately repay £15bn of BoE loans, with the rest repaid by 2009. Northern Rock has so far borrowed around £25bn from the BoE. Olivant also plans to execute a £650m rights issue and raise £800m in equity capital, it said today.