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Sir Richard Branson to the rescue

Sir Richard Branson’s Virgin Consortium has been named preferred bidder for the stricken UK building society Northern Rock, under an indicative proposal that will see Northern rock rebranded as Virgin.

The Virgin proposal involves repaying £11bn debt to the Bank of England immediately upon completion of the transaction, and injecting £1.3bn into the business, half of which will be raised through a fully underwritten rights issue.

The Virgin Consortium comprises Virgin Group, WL Ross & Co, Toscafund Asset Management LLP and First Eastern Investment Group.

As well as repaying £11bn to the Bank of England immediately, the Virgin proposal includes the offer of a “clear path towards repayment in full.”

Of the new £1.3bn in new cash, half will provided by the Virgin Consortium in return for new shares and half will be raised through an offer to existing holders shares in Northern Rock on a pro rata basis at a price of 25 pence per new ordinary share. The Virgin Consortium is arranging for the offering to be fully underwritten.

Under the indicative proposal, Virgin Money will also be injected into the business in return for new shares on the same pricing basis as the offering and, if the offering is fully taken up by existing shareholders, the Virgin Consortium will hold no more than 55% of Northern Rock once the transaction has been concluded.

A new management team will be put in place, led by Sir Brian Pitman (formerly Chairman and CEO of Lloyds TSB Group plc) as Chairman and Jayne-Anne Gadhia as CEO, and supported by Sir George Mathewson (formerly Chairman of The Royal Bank of Scotland plc) as senior adviser.