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Northern Rock is GMAC's Acquisition Target: Sources

Reuters
Thursday, 22 Nov 2007 | 2:57 AM ET

U.S. finance company GMAC said on Wednesday it is exploring the sale of parts of its troubled mortgage-lending arm, Residential Capital, and the purchase of a non-U.S. mortgage lender, which sources said was the UK's Northern Rock.

GMAC said in a statement it submitted an indication of interest to buy a "large non-U.S. mortgage lending institution," but did not identify the target.

Sources told Reuters that Northern Rock is the institution that GMAC would like to buy.

GMAC is 51 percent owned by a consortium led by private equity firm Cerberus Capital Management. On Tuesday, another source told Reuters Cerberus has submitted a bid for Northern Rock.

GMAC, 49 percent owned by General Motors, would not elaborate on its statement. Cerberus declined to comment.

Others Pursuing the Same Target

GMAC said its goal would be to combine the local mortgage business of Residential Capital (ResCap) with the acquired institution if GMAC was successful in doing a deal.

Other interested parties are pursuing the same acquisition, GMAC said, and there can be no assurance it will succeed.

Also on Wednesday, ResCap said it had launched a cash tender offer for up to $750 million of its debt. The purchase of the notes at a discount, and the retirement of the debt, would increase ResCap's income in the fourth quarter, it said.

Like many lenders, ResCap has struggled as falling home values and rising interest rates have made it tougher for many homeowners to keep up with mortgage payments.

Earlier this month, ResCap posted a $2.6 billion loss for the third quarter, which led to a $1.6 billion loss at GMAC.

In the third quarter, GMAC injected $1 billion into ResCap. Analysts and investors have questioned how long GMAC will be willing to support the mortgage lender.

GMAC and ResCap said they continue to explore options to improve ResCap's liquidity, such as acquisitions, asset sales, alliances and joint ventures.

GMAC also said on Wednesday its management intends to recommend a capital contribution to ResCap, but there can be no assurances that GMAC's board will authorize it.

Shares of GM rose 4.5 percent to $27.47 after the announcements but later slipped back to $26.39, up 10 cents.

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