Northern Rock prefers Virgin bid
Northern Rock PLC will hold accelerated takeover discussions with a consortium led by Virgin Group, the battered mortgage lender said on Monday.
By Agencies |
LONDON: Northern Rock PLC will hold accelerated takeover discussions with a consortium led by Virgin Group, the battered mortgage lender said on Monday.
Virgin, which proposes to re-brand Northern Rock as part of Virgin Money business, says its consortium would repay 11 billion pounds (euro15.3 billion; US$22.7 billion) of the 25 billion pounds (euro35 billion; US$50 billion) 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 percent in early trading on the London Stock Exchange to 76 pence (euro1.06; US$1.57).
By late morning, however, buyers bid up the shares to 111.2 pence (euro1.55; US$2.29), up 29 percent.
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 7 percent 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 nationalization, 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.
``We very much deprecate the driving down of the share price to meet expectations about future price, which seems to favor the interests of some potential bidders above existing shareholders,'' the letter said.
Virgin's consortium includes W.L. Ross & Co, Toscafund Asset Management LLP and First Eastern Investment Group.
The Virgin proposal includes a new management team led by Sir Brian Pitman, formerly chairman and CEO of Lloyds TSB Group PLC, as chairman; Jayne-Anne Gadhia, CEO of Virgin Money, as CEO; and Sir George Mathewson, former chairman of The Royal Bank of Scotland PLC as senior adviser.
Northern Rock, which relied on short-term borrowing, ran into trouble in September when the subprime lending crisis in the United States made banks wary of extending credit. The Bank of England stepped in as a lender of last resort and triggered a run on Northern Rock deposits, and a collapse of its share price.
Virgin Money Holdings UK Ltd. and its subsidiaries have rights to use the Virgin brand in retail financial services in the United Kingdom. Virgin Money, based in Norwich, England, was established in 1995.
Northern Rock said there was no certainty that that the Virgin proposal would be accepted, and that meanwhile the company continued to explore other options.
Virgin, which proposes to re-brand Northern Rock as part of Virgin Money business, says its consortium would repay 11 billion pounds (euro15.3 billion; US$22.7 billion) of the 25 billion pounds (euro35 billion; US$50 billion) 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 percent in early trading on the London Stock Exchange to 76 pence (euro1.06; US$1.57).
By late morning, however, buyers bid up the shares to 111.2 pence (euro1.55; US$2.29), up 29 percent.
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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 7 percent 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 nationalization, 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.
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``We very much deprecate the driving down of the share price to meet expectations about future price, which seems to favor the interests of some potential bidders above existing shareholders,'' the letter said.
Virgin's consortium includes W.L. Ross & Co, Toscafund Asset Management LLP and First Eastern Investment Group.
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The Virgin proposal includes a new management team led by Sir Brian Pitman, formerly chairman and CEO of Lloyds TSB Group PLC, as chairman; Jayne-Anne Gadhia, CEO of Virgin Money, as CEO; and Sir George Mathewson, former chairman of The Royal Bank of Scotland PLC as senior adviser.
Northern Rock, which relied on short-term borrowing, ran into trouble in September when the subprime lending crisis in the United States made banks wary of extending credit. The Bank of England stepped in as a lender of last resort and triggered a run on Northern Rock deposits, and a collapse of its share price.
Virgin Money Holdings UK Ltd. and its subsidiaries have rights to use the Virgin brand in retail financial services in the United Kingdom. Virgin Money, based in Norwich, England, was established in 1995.
Northern Rock said there was no certainty that that the Virgin proposal would be accepted, and that meanwhile the company continued to explore other options.
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