Last updated: May 30, 2013 5:37 pm

Royal Bank of Scotland rejects JC Flowers’ bid

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Royal Bank of Scotland has narrowed the field of bidders for hundreds of its branches, leaving three rival factions of City investors and private equity groups battling to win control of the estate.

The bank, which has been courted in recent months by City investors, private equity houses and a rival lender, has informed Apollo and JC Flowers, the buyout group headed by former Goldman Sachs banker Chris Flowers, that their bid was unsuccessful, say people familiar with the matter.

The sale of the 315 branches, known as Project Rainbow, is required under European state aid rules after RBS received a £45bn taxpayer bailout at the height of the financial crisis. A planned sale to Spain’s Santander, initially valued at £1.65bn, fell apart last October.

RBS announced a change of strategy earlier this year, saying that it would focus on building a fresh technology platform to create a standalone business but also raised the possibility of an investor taking a stake in the business before an initial public offering.

The JC Flowers-Apollo bid had proposed making an upfront investment in the business of about £500m. When the estate was floated this would have equated to about half of the business.

Both RBS and JC Flowers declined to comment.

The departure leaves two rival factions of City investors as well as another private equity bid vying to win control of the estate.

One consortium, composed of more than 20 asset management companies, including Schroders, Threadneedle, Aviva and Invesco Perpetual, has chosen former Tesco finance director Andrew Higginson to lead their bid.

Their proposal is to create a listed shell company into which the RBS assets would be reversed, formally buying the business this year but waiting another 18 months or so before it is fully separated from RBS and they take control. The bid is believed to be at the upper end of an £800m to £1bn range.

Another grouping is formed from a combination of private equity groups Corsair and Centerbridge as well as British investors including Standard Life and Lord Rothschild’s RIT Capital.

A third party that has expressed interest in the RBS branches is AnaCap Financial Partners, a London-based group, which has partnered with Blackstone, the US buyout house.

“AnaCap can confirm that they are still actively engaged in the Rainbow sale process and continue to work closely with RBS,” AnaCap said on Thursday.

Virgin Money, backed by US financier Wilbur Ross, had expressed an interest but is understood to be no longer actively pursuing a bid. The bank declined to comment.

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