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February 11, 2008

Northern Rock institutional shareholders question Virgin bid

by Gill Montia

Story link: Northern Rock institutional shareholders question Virgin bid

Northern Rock’s institutional shareholders are reported to be uneasy about the terms of Virgin’s bid for the stricken mortgage bank.

The investors are questioning the value of Virgin Money, which is currently estimated to be worth £250 million, and will be merged with Northern Rock should the bid be successful.

In 2006, Virgin Money recorded profit of £9 million but Virgin maintains that the business is growing strongly and the recent valuation is justifiable.

The disgruntled shareholders are reported to include Legal & General, Schroders and hedge funds RAB Capital and SRM Global.

Both RAB and SRM are also known to be strongly opposing the £8 million to £10 million annual fee that Virgin Group plans to charge Northern Rock for the use of its brand.

Meanwhile, shareholders generally are concerned that a successful Virgin bid will result in a discounted rights issue that would dilute their stake in Northern Rock and give Virgin and its backers around 54% of the shares.

There is also the question of the Northern Rock name. A large number of investors are in favour of it being retained, whereas Virgin asserts that the brand is damaged beyond repair and the bank’s best chance of recovery is as part of the Virgin group.

Meanwhile, Northern Rock’s management led bid is reported to be gathering shareholder support.


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