Virgin bid for Northern Rock poised for success

by Gill Montia

Story link: Virgin bid for Northern Rock poised for success

A consortium led by Sir Richard Branson’s Virgin Group is on the verge of acquiring Northern Rock, the stricken mortgage lender.

Talks have been taking place over the weekend and it is expected that the consortium will be named as preferred bidder today.

If the bid is successful, Virgin Money, Virgin group’s personal finance business, will merge with Northern Rock.

In return for an injection of cash, the consortium will take a share of between 50% and 60% of the bank.

It is reported that the takeover will be followed by a heavily discounted rights issue that will value the new shares at somewhere between 20p and 40p each.

The bid plans include an immediate repayment of £11 billion of the £25 billion that Northern Rock owes to the Bank of England.

A discounted rights issue would face opposition from Northern Rock shareholders.

Small investors, represented by the Northern Rock Small Shareholders’ Association have confirmed that they would oppose “a sale of the company as a whole or piecemeal, or any move such as administration or nationalisation, which would expropriate the shareholders’ stake or so dilute it as to be the equivalent”.

The Virgin consortium includes Wilbur Ross, the American distressed debt investor, AIG, the global insurance group, the hedge fund, Toscafund, and First Eastern Investment Group, a Hong Kong-based finance company.

Sir Brian Pitman, the former chief executive of Lloyds TSB, is expected to become chairman, if the bid is successful.

Northern Rock shares were trading at 86p at the end of last week, valuing the business at £362 million.