While the announcement appeared to be positive news for the lender, opposition to the bid was immediately raised from various sources, not least from the other potential bidders.
The government’s decision to name a preferred victor has placed Virgin squarely in the frame to win in its bid to take over Northern Rock, with a plan that includes rebranding the troubled bank to Virgin, while retaining its stock market listing. As part of the proposal, the bank will not be broken up and will remain a going concern.
Virgin’s plans for Northern Rock include immediately repaying £11 billion of the Bank of England emergency loan, reported to total around £24 billion, while the remaining amount will be repaid back over the course of the next three years.
Further to this, Virgin plans to pump £1.3 billion of new cash into the bank, along with the value of Virgin Money, said to be worth £250 million.
A board has been assembled to take on Northern Rock’s business including financial bigwigs Sir Brian Pitman – the former chairman of Lloyds TSB Group – as its chairman, and Sir George Mathewson – RBS’ former chairman who transformed it into a global player – as a senior adviser.
Bryan Sanderson, chairman of Northern Rock, said: “This is very good news for Northern Rock. Over the last few weeks and months we have looked at the issues from the perspective of all stakeholders. I am grateful for the support that we have had from customers and employees who have stayed loyal to us during these difficult times, and pleased that a solution that firmly restores the company’s prospects has been identified. Furthermore, our retail depositors can be fully reassured that the government has said it will ensure savers’ money is safe whatever the outcome.”
However, opposing bidder Olivant, the private equity firm lead by ex-Abbey head Luqman Arnold, has come forward to challenge Virgin’s status as preferred bidder and is reported to have paid market prices for a 15 per cent stake in Northern Rock to boost its advantage in obtaining the bank.
Yet, Chancellor of the Exchequer, Alistair Darling, also stressed that despite the government naming Virgin as its preferred choice, the way was still clear for other potential bidders to come forward with alternative rescue proposals for Northern Rock.
JC Flowers and Cerberus are reportedly still interested in pursuing their bids for the bank, though no firm details have been released by either party.
However, it is not just other bidders voicing opposition to the government’s decision tp back Branson. The Virgin bid has been accused of being too low, with major shareholder RAB Capital taking steps to block the acquisition attempt.
Commenting on the situation affecting the bank, Philip Richards, chief executive officer of RAB Capital, said: “We do not believe that this proposal reflects the true value of Northern Rock and we would expect either that this proposal be improved or that alternative proposals be brought forward which would combine a similar repayment schedule for the Treasury together with improved terms for shareholders.”
The move by Virgin and the government’s subsequent backing of its takeover proposal has led to Northern Rock’s small shareholders, which hold around 20 to 25 per cent of the bank’s shares, teaming up to oppose the bid.
The Northern Rock Shareholder Action Group has voted against Virgin’s bid, saying many investors would be unable to afford Virgin’s proposed rights issue to get a share of the recovery.
If the block is successful, Northern Rock could potentially face going into administration or being nationalised.
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