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An audacious bid by one of Britain's most swashbuckling entrepreneurs, Sir Richard Branson, to take over the crisis-hit Northern Rock bank was greeted with a smile from ministers and a sneer from the London financial district yesterday, which dismissed it as an attempt to buy a large financial institution on the cheap.
A consortium led by Branson's Virgin empire has been named as the preferred bidder by Northern Rock's board in a deal that would pump £1.3 billion into the bank and save the jobs of most of its 6000 staff, as well as guaranteeing to pay back £25 billion of emergency loans from the taxpayer.
Under the deal, the business would be merged with Branson's Virgin Money mortgage business and immediately repay £11 billion to the Bank of England with a promise to return the remaining £14 billion over the next three years, provided the business prospered.
Existing shareholders would put up half of Virgin's £1.3 billion through a new sale of shares, giving them a stake in the rescued company's future profitability.
But the new shares would be sold at 26p each, valuing Northern Rock at less than £200 million - almost half of the £362 million value placed on the company at the start of trading yesterday and 4 per cent of its £5 billion value at the beginning of the year.
Shares in Northern Rock soared 28 per cent to 110p yesterday.
The Government praised Branson's private equity deal, which would bring a quick end to a crisis which has undermined confidence in its stewardship in the economy.
Voices in the City, however, warned that Branson was attempting to take control of a company with £100 billion of assets for a small outlay.
- INDEPENDENT
