Northern Rock confirms preference for Virgin bid

LONDON – Northern Rock PLC will hold accelerated takeover discussions with a consortium led by Virgin Group, the battered mortgage lender said yesterday.

Virgin, which proposes to re-brand Northern Rock as part of Virgin Money business, says its consortium would repay 11 billion pounds of the 25 billion pounds the Bank of England has loaned to Northern Rock on the completion of the transaction. The remainder of the money would be paid “in due course,” Northern Rock said in an announcement to the London Stock Exchange.The Virgin Consortium also promised additional funding facilities to support the business.The market’s first reaction was negative, with Northern Rock shares falling 11,5 per cent in early trading on the London Stock Exchange to 76 pence.By late morning, however, buyers bid up the shares to 111,2 pence, up 29 per cent.”The share price has rebounded because some investors have taken the view that, with shareholders keeping potentially 45 per cent of a company re-energised under a powerful brand like Virgin, it could be worth substantially more in a couple of years than the 25 pence nominal value a share that some had predicted would be all that shareholders would receive,” said Nic Clarke, an analyst at Charles Stanley in London.But not all analysts were convinced.”This stock is not for the faint hearted and the range of outcomes for shareholders is very wide,” Clarke added.Investors in the bank have said they would resist any bid that did not offer shareholders value for money.The government has the option of placing the bank in administration if a deal cannot be struck — the worst outcome for stockholders.Hedge fund RAB Capital holds a seven per cent stake in Northern Rock and RAB’s chief executive, Philip Richards, has backed the Virgin offer, which would allow shareholders to retain around a third of the business and also offer them a share of any future profits.The Northern Rock Small Shareholders Association, representing about 100 000 of Northern Rock’s small shareholders, said Sunday they were opposed to any “fire sale” of assets.”The options which we would oppose would be 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,” said the letter signed by Lord Stevens of Kirkwhelpington, the association’s honorary president.Nampa-APThe remainder of the money would be paid “in due course,” Northern Rock said in an announcement to the London Stock Exchange.The Virgin Consortium also promised additional funding facilities to support the business.The market’s first reaction was negative, with Northern Rock shares falling 11,5 per cent in early trading on the London Stock Exchange to 76 pence.By late morning, however, buyers bid up the shares to 111,2 pence, up 29 per cent.”The share price has rebounded because some investors have taken the view that, with shareholders keeping potentially 45 per cent of a company re-energised under a powerful brand like Virgin, it could be worth substantially more in a couple of years than the 25 pence nominal value a share that some had predicted would be all that shareholders would receive,” said Nic Clarke, an analyst at Charles Stanley in London.But not all analysts were convinced.”This stock is not for the faint hearted and the range of outcomes for shareholders is very wide,” Clarke added.Investors in the bank have said they would resist any bid that did not offer shareholders value for money.The government has the option of placing the bank in administration if a deal cannot be struck — the worst outcome for stockholders.Hedge fund RAB Capital holds a seven per cent stake in Northern Rock and RAB’s chief executive, Philip Richards, has backed the Virgin offer, which would allow shareholders to retain around a third of the business and also offer them a share of any future profits.The Northern Rock Small Shareholders Association, representing about 100 000 of Northern Rock’s small shareholders, said Sunday they were opposed to any “fire sale” of assets.”The options which we would oppose would be 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,” said the letter signed by Lord Stevens of Kirkwhelpington, the association’s honorary president.Nampa-AP