Branson named as NR frontrunner

After entering into discussions with the Tripartite Authorities - the Bank of England, HM Treasury and the Financial Services Authority - Northern Rock's Board confirmed that the bid made by the Virgin Group consortium is the one it wishes to progress.

Branson's consortium, which comprises the Virgin Group, WL Ross & Co, Toscafund Asset Management LLP and First Eastern Investment Group, is now working to finalise its proposal.

The indicative proposal has put forward that it will repay £11 billion to the Bank of England at completion of the transaction – and the Bank of England will then have a clear path towards repayment in full.

Other key inclusions are:

• £1.3 billion of new cash and the Virgin Money business will be injected into Northern Rock for an issue of new ordinary shares in each case. The implied value of Virgin Money is £250m.
• Of the cash amount half will be provided by the Virgin Consortium and half will be raised through an offer to existing holders on the relevant record date of new ordinary shares in Northern Rock on a pro rata basis at a price of 25 pence per new ordinary share (the “Offering”). The Virgin Consortium will arrange for the Offering to be fully underwritten.
• The injection of Virgin Money will take place on the same pricing basis as the Offering and, if the Offering is fully taken up by existing shareholders, the Virgin Consortium will hold no more than 55 per cent of the Company once the transaction has been concluded.

The consortium also proposes that all interest accruing to the Company’s financing sources, including under the Bank of England facilities, will be paid in cash rather than rolled-up for payment in due course.

Under the Virgin consortium, should everything progress smoothly, Northern Rock will become Virgin and retain its stock market listing. The consortium has also said that it does not have any intention of making any redundancies.

One of the necessary changes will be the introduction of a new management team. This will be led by Sir Brian Pitman as chairman (formerly chairman and CEO of Lloyds TSB Group plc) and Jayne-Anne Gadhia as CEO, supported by Sir George Mathewson (formerly chairman of The Royal Bank of Scotland plc) as senior adviser.

Northern Rock's chairman, Bryan Sanderson, said it was very good news for the bank: “I am grateful for the support that we have had from customers and employees who have stayed loyal to us during these difficult times – and pleased that a solution that firmly restores the Company’s prospects has been identified.”