The value of Irish Nationwide's interest in commercial property ventures is being assessed by Landsbanki and is likely to be a significant factor in the final figure the Icelandic bank offers for the building society, according to a source close to the bank.
About two-thirds of Irish Nationwide's loans are made on commercial property assets and the building society will earn performance fees from its interest in some property ventures it has financed.
As part of its due diligence on Irish Nationwide, Landsbanki has received information on the potential value of these ventures, some of which will not be completed for several years.
It is thought that when Landsbanki finally tables a bid for the building society, it may argue that it will not be able to assess how much Irish Nationwide could potentially earn from these ventures because it will be some time before they reach maturity and their value "crystallises".
Landsbanki has been guided by Irish Nationwide's management on the potential value. These ventures could be worth several hundred million euro to the building society over the coming years.
Given that the sale of Irish Nationwide will involve a bidder making a cash payment to the building society's estimated 120,000 members, Landsbanki will not be able to include in its offer earn-outs on potential profits to be made from these ventures.
The bank must table a bid at a level that will include what it believes is a reasonable price for the potential to be earned.
Landsbanki is expected to seek advice from Heritable, its subsidiary in London, which specialises in commercial property lending. The Icelandic bank is expected to table a bid in the coming weeks.
Irish Nationwide is expected to sell for more than €1 billion. The final price is expected to be driven up by the fact that the society has enjoyed a very strong performance in 2007.
The interest of another potential bidder, a consortium comprising Bank of Scotland (Ireland) and Dublin private equity firm Quinlan Private, has cooled since their interest in the building society was made public in The Irish Times last month, but they have not left the race. It is believed that more than two parties are interested in tabling a bid.
