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Morning business news: 21 November

Written by Roberta Murray

Friday, 21 November 2008

Woolworth's sale close to collapse and a major shareholder could back the Barclays capital raising deal.

Last-ditch talks to rescue Woolworths (LON:WLW) are close to collapsing after the retailer's lenders refused to sign up to a deal.

A syndicate of lenders – led by Bank of Ireland subsidiary Burdale Financial and GMAC Commercial – were holding out last night and refusing to approve the sale of the group's retail chain, reports the Telegraph.

Yesterday it was reported that Woolworth's was facing administration threats should the sale of the company fail.

It emerged that Woolworth's needs to complete the disposal of its loss-making retail business before Christmas in order to avoid the risk of being pushed into administration by its lenders.

Yesterday it emerged that after debt was taken into consideration the company would be sold for a mere £1.

The board of the retailer fears that the group’s lenders could push the entire business into administration – including its profitable wholesale and publishing divisions – if they hang on to the troubled retail arm, said the Telegraph.

The FT added that the group’s biggest shareholder on Wednesday criticised talks between the retailer and Hilco UK, the retail restructuring company, arguing the group’s stores were worth much more than the nominal price under discussion.

Barclays deal

Legal & General (LON:LGEN) Investment Management has backed away from its threat to vote against Barclays’ (LON:BARC) move to raise £7bn in fresh capital, much of it from Middle Eastern investors.

The investors stressed that they backed the deal under protest.

L&G, which owns about 5% of Barclays, said it would vote in favour of the issue only because failure to secure a fresh injection of capital for Barclays would materially damage its share price and therefore the interests of L&G’s clients.

Peter Chambers, chief executive of Legal & General Investment Managemen said, "it is deeply disappointing that after much consultation with Barclays the terms of the financing have not been amended to allow existing investors to participate on the same terms as the strategic investors."

Other business news in the morning papers

Annual public borrowing is set to rocket towards £120bn over the next two years – far higher than City forecasts – forcing Alistair Darling to announce plans for deferred tax rises and public spending curbs when he presents his pre-Budget report next week. Treasury officials say the “mammoth shock” to the economy will cause tax revenues to fall far below previous government forecasts, even before the chancellor announces what is promised to be a “decisive” temporary fiscal stimulus, reports the FT.

Another £3bn of taxpayer money has been put at risk in Northern Rock after the nationalised lender's off-balance sheet funding vehicle, Granite, was put in to run-off yesterday. Northern Rock triggered the £37bn vehicle's wind-up by breaching rules on the size of cushion provided by the nationalised bank to Granite's institutional bondholders. By declining to transfer any more mortgages into Granite, the lender reduced its collateral below the contractual 8.2% minimum, reports the Telegraph.

Richard Lambert, the CBI Director-General, risked the wrath of Britain's biggest industry yesterday when he said that UK carmakers should not receive large American-style bailouts. His comments to The Times come after the Society of Motor Manufacturers and Traders petitioned the Government for a range of support, including loans to the industry. Fears are growing for the future of Vauxhall's Ellesmere Port plant because its parent, General Motors, could go under next month. The unions have called for £13bn in state support for the industry.

Wall Street was last night anticipating that at least one of America’s Big Three carmakers will file for bankruptcy protection within weeks after bail-out plans for the country’s near-bust car industry were left in tatters. General Motors shares sank to their lowest level since 1938 at one point yesterday amid a showdown between the outgoing Republican Administration under President Bush and the incoming Democrat Administration led by Barack Obama, the US President-elect who takes office on January 20, reports the Times.

The UK government pledged to fight on to meet housebuilding targets yesterday, despite a fall in new starts to a record low. Seasonally adjusted housebuilding starts fell by a third in the three months to September, compared with the quarter to June. Compared with a year earlier, they almost halved, reports the Independent.