Lending news

Virgin on top in Northern Rock tussle

9 February 2008

The move will leave two bidders in the running; Virgin and Northern Rock’s own board.

Olivant announced it was withdrawing just hours before the deadline for official rescue plans were to be submitted to the Tripartite Authorities on 4 February, despite claiming it would move ahead with an offer in the days before.

Virgin planned to inject £1.25 billion into Northern Rock to secure it against future market turmoil, while Northern Rock’s board proposed a minimum £500 million injection of capital, reducing assets and re-organising of operations.

Sir Brian Pitman, proposed executive chairman of Virgin Bank, said: “The proposal is a sound public-private solution for Northern Rock that will see taxpayers’ interests protected and give existing shareholders the opportunity to invest alongside, and at the same subscription price, as the Virgin Consortium.”

However, reports from the BBC suggested that 1,000 Northern Rock jobs would be under threat if the Virgin bid was successful, due to the necessity of repaying government-backed bonds issued by Northern Rock within three years. Virgin had previously promised no redundancies.

Ray Boulger, senior technical manager for John Charcol, commented: “In reality, if the choice was between Virgin and nationalisation, Virgin would be the better option, no matter how much the shareholders don’t want it.

"The management offer doesn’t seem to have sufficient credibility. Recapitalising to a good level has to be a priority. The government is in a very weak negotiating position and, if it can bring Olivant back, that would clearly be beneficial.”