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Virgin revealed as preferred bidder for Northern Rock

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by Kay Mitchell

There are two bidders for Northern Rock which include a consortium led by Sir Richard Branson’s Virgin Group and a stand-alone solution proposed by the board of Northern Rock, led by Paul Thompson.

It has been revealed that the Virgin consortium is the front-runner. A source close to the bank said Virgin are ahead currently but they would need to improve their offer before the Government is ready to do a deal.

Consequently, Virgin has been told to improve the terms of its proposal as the Treasury sees nationalisation of the crisis-torn bank as a better solution for the taxpayer.

The Treasury wants Virgin to offer more for the billions in financial support being provided by the Government and it also wants a bigger potential stake in Northern Rock for the taxpayer, via a so-called warrant over the bank’s shares.

A spokesman for Virgin said the group will continue to talk to the Government about its proposal, but declined to comment further.

The rescue plan proposed by Northern Rock’s management has not been ‘killed off‘ but has been told by the Treasury that its current proposal is considerably inferior to the rescue plan proposed by Virgin.

This latest announcement will be disappointing for the shareholders of Northern Rock. Northern Rock’s largest shareholders, hedge funds RAB Capital and SRM Global have said they would consider legal action if the Treasury accepts Virgin’s offer for the bank as the Virgin proposal will significantly dilute existing investors‘ shares. They are in full support of the stand-alone solution.

It was announced last week that the consortium led by Sir Richard Branson’s Virgin Group will shed jobs if it emerges as the preferred bidder for Northern Rock.

The source close to the bank also said Prime Minister Gordon Brown is calling the shots on the future of Northern Rock. He is still hoping that a partial nationalisation deal with Virgin or the Northern Rock management team can be negotiated.

However, the source added that Gordon Brown is said to be no longer seeking to avoid nationalisation at any price. Nationalisation is looking much more likely than it did, added the source.

Northern Rock shares were down 4.5% at 100.25p at 8.01 this morning valuing the mortgage lender at £420 million.

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News posted: February 13, 2008

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