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 Branson’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 ‘we currently oppose the Virgin plan. If it were a two-way competition between Virgin and nationalisation, we would vote for nationalisation‘.
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 £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 Rock’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 £410 million.