Paragon shares jump on takeover approaches

By Myles Neligan and Mathieu Robbins

LONDON (Reuters) - Buy-to-let mortgage lender Paragon (PARA.L) said on Tuesday it was in talks with potential buyers after receiving an unspecified number of takeover approaches, sending its shares up nearly 20 percent.

U.S.-based buyout giant the Blackstone Group (BX.N) is among the groups negotiating with the Solihull-based mortgage lender, said a source close to the situation.

Paragon did not name the parties involved, but said it had given them access to its books and was engaged in "exploratory discussions".

Blackstone declined to comment.

Paragon shares were up 18 percent at 102.75 pence by 9:50 a.m., valuing the company at about 289 million pounds .

The stock has lost 87 percent of its value since August 2007 as the credit crunch has pushed up Paragon's funding costs and eaten into its profits. In February, it raised 287 million pounds through a deeply discounted rights issue in order to repay a credit facility.

The move by Blackstone demonstrates that buyout firms see opportunities in the beleaguered UK mortgage lending sector, despite Texas Pacific's decision to abandon a planned 179 million pound investment in buy-to-let specialist Bradford & Bingley BB.L after B&B's credit rating was downgraded earlier this month.

Analysts said UK banks were unlikely to bid for Paragon due to its focus on buy-to-let mortgages, seen as at higher risk of default in a falling property market than mainstream home loans.