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Tue, Nov 27, 2007 - Page 10 News List

Virgin picked for Northern Rock rescue

OFFER The consortium would repay £11 billion of the £25 billion the Bank of England loaned to Northern Rock, with the rest to come later. Shareholders are not sure

AGENCIES , LONDON

Northern Rock PLC will hold accelerated takeover discussions with a consortium led by Virgin Group, the battered mortgage lender said yesterday.

Virgin, which proposes to re-brand Northern Rock as part of Virgin Money business, says its consortium would repay £11 billion (US$22.7 billion) of the £25 billion the Bank of England has loaned to Northern Rock on the completion of the transaction.

The remainder would be paid "in due course," Northern Rock said in an announcement to the London Stock Exchange.

The Virgin Consortium also promised additional funding facilities to support the business.

Virgin's consortium, which also includes buyout firm WL Ross, investment group Toscafund and Hong Kong-based investment group First Eastern, said under its plan £1.3 billion of new cash will be injected into Northern Rock.

Half of the cash will come from the consortium and half will be raised through a rights issue at 25 pence per share. The consortium will also inject Virgin Money, the Virgin financial services company, into the bank, with an implied valuation for Virgin Money of ?250 million.

The Virgin consortium will hold no more than 55 percent of the enlarged group if the underwritten rights issue of shares is fully taken up.

The market's first reaction was negative, with Northern Rock shares falling 11.5 percent in early trading on the London Stock Exchange to 76 pence. Within the first hour of trading, however, buyers bid up the shares to 87 pence, up 1.3 percent.

A deal could face problems from shareholders. Northern Rock's top two investors -- hedge funds RAB Capital and SRM Global -- have urged advisers to scrap the auction to prevent any "fire sale." SRM Global said an extraordinary shareholder meeting should be held to allow a vote on the sale of all or part of the bank.

Northern Rock said it did not consider such action "to be warranted or appropriate" but if necessary it would convene a meeting.

Shareholders could be told they need to accept a deal or risk the bank going into administration, people familiar with the situation have said.

Northern Rock ran into trouble in September after the subprime lending crisis in the US erupted.

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