Richard Branson's Virgin emerges as firm preferred bidder for Northern Rock

27 November 2007

Maverick industrialist Sir Richard Branson''s Virgin Group is poised to win the race for troubled British lender Northern Rock. Virgin''s bid received the backing of the government and the Northern Rock board on Monday 26 November after a number of whirlwind meetings over the weekend.

But the deal has attracted strident criticism from some shareholders and rival bidders, who said the billionaire has undervalued the company and has no answers to key questions about the deal''s financing. But an official statement from the bank said the Virgin consortium had gained preferred bidder status after demonstrating that it offered the best option for the government, the bank''s main creditor.

The Virgin consortium plans to inject £1.3 billion ($2.7 billion) into the troubled bank. But half the cash will be raised by selling new shares at 25p (51¢) each, valuing Northern Rock at about £225 million ($465 million) a fraction of the group''s £5.2 billion ($10.75 billion) value in February.

Virgin wants the bank''s present shareholders to take up the rights issue, so that it would own 55 per cent of the company and existing shareholders 45 per cent. But if they refuse to subscribe to the issue, it will buy all the extra shares itself. The group also intends to repay £11 billion ($22.75 billion) of the estimated £23 billion ($47.57 billion) debt Northern Rock owes the Bank of England for its bailout, by the time a deal is completed in February.

Virgin said it can mobilise the funds to repay the government and re-finance Northern Rock''s mortgage operations from a consortium of backers including the US billionaire Wilbur Ross. It is also expected to use a £10 billion ($20.68 billion) facility provided by Citibank. Analysts have mostly welcomed the bid, arguing it would present investors with an exit would pay more than nationalisation or insolvency.

Branson, Britain''s 11th richest person with a £3.1 billion ($6.4 billion) fortune, has said he wants to rebuild the bank under the Virgin brand, as a place for savers. He has written to Northern Rock customers outlining his "personal commitment" to the Newcastle-based bank and its workforce.