Northern Rock shareholders threatening to block Virgin rescue package

Northern Rock shareholders threatening to block Virgin rescue package

The rescue of crisis-torn Northern Rock could end up in a legal battle as the two largest shareholders are threatening to block a rescue package from the consortium led by Sir Richard Bransona��s Virgin Group.

Hedge funds RAB Capital and SRM Global, which together own 19.68% of the bank, are said to be ready to oppose the bid from Virgin Group when it is put to a shareholder vote.

Both RAB and SRM have been building their stakes (RAB to 8.18% yesterday and SRM to 11.5% on Wednesday) and need only a little extra support to reach the 25% they claim could block the Virgin bid.

A spokesperson for the two hedge funds said a�?we currently oppose the Virgin plan. If it were a two-way competition between Virgin and nationalisation, we would vote for nationalisationa�?.

The two hedge funds are in full support of the stand-alone solution proposed by the board of Northern Rock, led by Paul Thompson.

Virgin is offering investors a heavily diluted stake through a rights issue at 25p a share. SRM boss Jon Wood has taken legal advice and believes the Government must pay shareholders 400p a share, the book value of the bank, if it is nationalised, at a cost of A?1.6 billion.

It is highly unlikely the Government would agree to compensate shareholders to 400p a share, however, it is believed that ministers may compromise to avoid a battle in the courts.

The Government is negotiating with Virgin to get a better deal for the taxpayer after Northern Rocka��s management team was told its offer for the bank did not come up to scratch. Revised proposals are expected to be submitted in the next few days resulting in a decision thereafter.

At 10.00am this morning, shares in the bank were up 1.3% at 97.5 pence, giving it a market value of A?410 million.

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