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December 3, 2007

Doubts raised over key Virgin bid backer

by Richard Kilner

Story link: Doubts raised over key Virgin bid backer

The Virgin consortium considered by Northern Rock to be its preferred bidder has failed to respond to mounting speculation that one of its major backers could leave the consortium.

Rumours are afoot that Deutsche Bank, one of the three backers of Virgin’s bid for the ailing bank, has developed certain issues with the takeover which could prove insurmountable.

The two other banks involved in the Virgin bid are the Royal Bank of Scotland and Citigroup, though neither have confirmed or denied this. The consortium needs large banks in order to finance an immediate and substantial partial repayment of the massive Bank of England loan that Northern Rock has taken out.

It is speculated that both the Treasury and Northern Rock had been in communication with Deutsche Bank during the last few days as Deutsche had considered Virgin to be less than wholly accurate about its degree of involvement in the proposal.

Virgin has refused to comment, saying that it would not respond to every rumour and report featured in the media.

Competition continues for struggling Northern Rock, in spite of Virgin being named as the preferred option by the bank. In the next two days Olivant is expected to put a proposal before the bank and Treasury.

Furthermore, JC Flowers, a US private equity firm whose initial offering was not to the bank’s taste, will put forward a revised bid to the Treasury at some point during this week.

Speculation is rife that JC Flowers would be prepared to immediately repay £15bn of the Bank of England loan, compared with just £11bn on offer from Virgin. Additionally, JC Flowers may be willing to permit the Northern Rock shareholders to share in the bank’s potential revival.

Olivant’s bid contrasts with JC Flowers’ and Virgin’s in that it is not a complete takeover bid. Instead a minority stake of 15% would be taken and a top team of financial experts would work alongside the bank’s present management in an effort to turn its fortunes around.

Under Virgin’s proposal, 55% of the bank would become Virgin’s.

Virgin also faces obstacles in the form of SRM Global and RAB Capital, the two leading shareholders in Northern Rock who have 9% and 7% stakes respectively. Both hedge funds consider the Virgin bid to be too low and are understood to oppose the offer.

 

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Related stories to: Doubts raised over key Virgin bid backer

Northern Rock institutional shareholders question Virgin bid  ...

Virgin Group ‘Confident’ Of Deal To Secure Rock  ...

Prospect of job losses at Northern Rock  ...

Virgin proposes 1,000 Northern Rock job losses  ...

Virgin instructed to improve their bid for Northern Rock  ...

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