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By Mike Caggeso
Virgin Group Ltd., and a team of investors, have won British government approval to buy troubled lender Northern Rock PLC (PINK: NHRKF), sending the embattled bank's U.K.-listed shares up more than 28% in trading yesterday (Monday).
In a statement released by Northern Rock, Virgin's proposal will immediately repay $22.7 billion (11 billion pounds sterling) to the Bank of England, and inject $2.69 billion (1.3 billion pounds sterling) into Northern Rock. The Virgin-led group says it has no intention of cutting jobs.
Once the transaction is completed, the Virgin-led group – which includes billionaire Wilbur Ross, American International Group Inc. (AIG), Toscafund Asset Management LP and First Eastern Investment Group – will hold no more than 55% of the new bank, which will be folded into its Virgin Money unit.
The deal isn't yet a done deal, as Northern Rock plans to entertain offers from other suitors, namely Olivant Advisers Ltd., according to the London Times. Should a takeover fall though, the bank could be nationalized or put into administration, a worst-case scenario for shareholders.
"This stock is not for the faint hearted, and the range of outcomes for shareholders is very wide," said Nic Clarke, an analyst at Charles Stanley in London,
However, Virgin's government approval is a mighty weapon to wield, especially considering Northern Rock's debts to the Bank of England are near 25 billion pounds ($51.79 billion) in taxpayer money. Should Virgin become the sole suitor, the remaining 14 billion pounds owed to the Bank of England would be paid within the next three years, the BBC reported.
The BBC also reported that several Northern Rock shareholders aren't very warm to the Virgin takeover.
Hedge funds RAB Capital and SRM Global and a group of smaller shareholders warned they might vote against any Virgin takeover if the bid isn't at least on par with their standards.
"If we feel that we are being entirely ripped off, ripped out, kicked out of the long term, then shareholders may not be happy to just to roll over and go along with these people who it has been reported are preferred bidders," Robin Ashby of the Northern Rock Small Shareholders Group, told the BBC.
News and Related Story Links:
- Associated Press:
Virgin's Rock bid may be blocked
- Money Morning:
Northern Rock Buys Time Before Getting Bought Out
- Northern Rock:
Update on Strategic Review