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Virgin Preferred Bidder For Northern Rock
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Posted by: forwardone
Sir Richard Branson’s Virgin Group and its partners have been confirmed as the frontrunner to rescue Northern Rock in a deal which will reduce the striken mortgage lender's £25 billion borrowing by £11 billion immediately.
In a statement this morning, Northern Rock said it wishes to take forward talks with Virgin on an "accelerated basis" and promised that it has "no current intention making any material reduction" in headcount. Northern Rock employs 6,000 staff.
Despite an upfront payment of £11 billion, the consortium will still have to repay the remaining £14 billion Northern Rock has been forced to borrow from the Bank of England to keep it afloat. Today’s statement said “…the Bank of England will have a clear path towards a payment in full”.
It is likely the Virgin consortium will take up to three years to repay the remaining debt. This means the Government will have to seek approval from the European Commission to continue providing state aid to Northern Rock past the current deadline of February next year.
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Virgin have assured Northern Rock it has no plans to cut jobs and that it will retain the bank's Newcastle headquarters.
The plan proposed today will mean that Virgin Money, the group’s personal finance operation, will merge with Northern Rock.
Some £1.3 billion of cash will be pumped into Virgin Money, valuing it at around £250 million, and in return the Virgin consortium will take a stake of no more than 55 per cent.
The cash injection will be followed by a discounted rights issue, which is likely to prove controversial with existing shareholders because it will value the new shares at 25p each. Northern Rock’s fell by 14 per cent to 73.8p as soon as the markets opened this morning.
Virgin’s consortium includes a number of parties such as Wilbur Ross, the American distressed debt investor, AIG, the insurance giant, Toscafund, a hedge fund, and First Eastern Investment Group, a Hong Kong-based finance house It is backed by RBS and Citigroup.
Sir Brian Pitman, the former Lloyds TSB chief executive, has been named Rock’s chairman.
Jayne-Anne Gadhia has been confirmed as chief executive. She will be advised by Sir George Mathewson, the former chairman of RBS.
Bryan Sanderson, chairman of Northern Rock, said in a statement this morning: "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.
"Furthermore our retail depositors can be fully reassured that the Government has said it will ensure savers' money is safe whatever the outcome."
The statement said that the consortium expects to rebuild a deposit base quickly and is targeting a credit rating of no less than 'A'.
The consortium have also pledged that the the Northern Rock Foundation, the charity associated with the bank, will continue to receive a share of profits.
Virgin promised up to five annual payments of as much £10 million each "in recognition of the contribution of HM Treasury and the Bank of England to the restructuring of Northern Rock."
JC Flowers, the American private equity firm, is thought to be weighing up its options and may re-enter the fray with a revised bid this week.
Timesonline
Posted by: forwardone
Branson has also stated that NO profits will be taken out by him until all the billions of pounds have been repaid to the British taxpayer, who is currently helping keep NR afloat.