Virgin leading bidder for Northern Rock

Northern Rock's share price rose 28 per cent yesterday after the stricken British bank named a consortium led by British tycoon Richard Branson's Virgin Group as its preferred bidder.

The Virgin consortium will inject £1.3 billion (€1.8 billion) into the bank to save the business in return for a controlling stake of at least 55 per cent in the lender.

Northern Rock has been the biggest British casualty in the global credit crunch caused by the US subprime mortgage crisis.

Under the takeover terms, the Virgin consortium would immediately repay £11 billion of an estimated £25 billion owed by Northern Rock to the Bank of England. Virgin expects to repay the emergency loans in full within two to three years. Northern Rock, once Britain's eighth largest lender, was forced to seek emergency funds in September from the Bank of England. This sparked the first run on a British bank for more than a century.

The beleaguered bank was the leading performer on the FTSE yesterday as its share price rose 24.2p to 110.1p as shareholders warmed to the approach from the Virgin consortium despite the likelihood of a cut-price offer for investors. The share price jumped 57 per cent at one point yesterday. Part of the Virgin money being invested in Northern Rock will be raised through new shares which are being offered at 25p each, valuing Northern Rock at around £105.3 million - a fraction of its valuation of £5.2 billion in February.

Northern Rock chairman Bryan Sanderson said the consortium's plan was "very good news" for the bank. It is continuing to explore other options in its strategic review. Under proposals, the bank would be rebranded under the Virgin banner, combining with Virgin Money.

Virgin hopes to retain most of Northern Rock's 6,000 staff and to keep the bank's headquarters in Newcastle.

The Virgin consortium also includes buyout firm WL Ross, Toscafund Asset Management and Hong Kong-based investment group First Eastern. - (Additional reporting: Bloomberg and Reuters)