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Virgin-led Consortium submits proposal to Northern Rock plc

A consortium led by Virgin Group (the “Consortium”), has today submitted a non-binding indication of interest (“Proposal”) to the board of Northern Rock plc (“Northern Rock” or the “Company”) which, if consummated, will see the Consortium inject substantial new equity into Northern Rock. 

The Consortium includes:
  • Virgin Group, a leading branded venture capital organisation, and one of the world's most recognised and respected brands
  • AIG Financial Products Corp., part of AIG, the international insurance and financial services group
  • WL Ross & Co LLC, the principal investment firm specialising in restructurings, buyouts, and industry consolidations
  • Toscafund Asset Management LLP, the international investment group chaired by Sir George Mathewson
  • First Eastern Investment Group, a leading Hong Kong-based investment group      
The Virgin Consortium, which has Sir George Mathewson as a special adviser, is interested in investing in, and assisting in providing a continuing funding solution to Northern Rock. It is the Consortium’s intention to maintain Northern Rock’s listing, to retain the business in its entirety, to add to it and to grow it in the future; rather than seeking a break up or partial solution. It is also the Consortium’s intention that the existing right of the charitable Northern Rock Foundation to receive a proportion of the Company’s profits be maintained. 

The Consortium believes that beyond addressing Northern Rock’s current liquidity challenges, Northern Rock must seek a complete rebranding to repair its franchise and the confidence of its stakeholders if it wishes to continue as a standalone business. 

The Consortium intends to capitalise on the strength of the Virgin brand, the introduction of additional management and experience from the current Virgin Money business, and the funding and liquidity solutions to be delivered by the Consortium partners to rebuild Northern Rock’s franchise on stronger foundations. The Consortium believes that together with the Company it can bring the business a renewed confident future for the benefit of all of Northern Rock's current stakeholders. 

As part of the proposal, Virgin Money will be transferred to Northern Rock in return for equity; Northern Rock will, after completion of that transaction, be renamed and rebranded Virgin Money. It is a complementary business, with an established savings brand and a heritage in mortgages, and is a well-known innovator in personal financial services. It is expected that the reconfigured Virgin Money will quickly re-build a deposit base to drive a more sustainable funding structure. In addition, a substantial cash sum will be injected into the Company for new equity to be issued at a discount to the current share price, which will improve the Company’s capital position. These issues of new equity would be conditional on the current shareholders approving a "whitewash" of the provisions of Rule 9 of the Takeover Code, which would otherwise require the Consortium to make a takeover offer for the Company's existing share capital. 

The proposal is centred on the quickest possible solution to restore public confidence in the business and return it to profitable growth. Virgin has close to 100% name recognition in the UK with over 12 million brand customers in the UK alone. It is consistently rated as one of the most trusted brands in the UK and has a track record in personal financial services. Additionally, Virgin’s partners in the Consortium include major international institutions and highly experienced investors in complex situations around the world. 

It is proposed that the CEO of the combined business will be Jayne-Anne Gadhia, CEO of Virgin Money and previously Managing Director of RBS Mortgages (where she had responsibility for a mortgage book in excess of £65 billion). Prior to this Jayne-Anne was Managing Director of the Virgin One Account both when owned by The Royal Bank of Scotland and, before RBS’ buyout of its joint venture, with Virgin. 

Commenting on the Proposal, Sir Richard Branson said: “I’ve always believed that it’s Virgin’s role to improve things for customers through great value for money products and services, innovation and great customer service – whichever market we operate in. This has been evident in our financial service businesses both in Britain and abroad. I believe that if we’re successful we’ll be able to create an exciting new banking alternative for everyone in the UK. I and my team have pulled together a heavy hitting consortium that we believe has not only the knowledge and expertise but the financial clout to make a once great British institution great again. 

We have the opportunity to make a fresh start and build a renewed, confident future for the business and its tremendous staff as a continuing independent public company. We have confidence in the British economy going forward; and we are determined to preserve one of the last remaining truly independent UK-owned competitive forces in banking, mortgages and other financial services.” 

Commenting on the Proposal, Sir George Mathewson said: “I think the proposal from Virgin is to the benefit of all stakeholders in Northern Rock. Virgin provides an important point of stability and also has a recognised ability to execute growth plans. I look forward to providing guidance and assistance in building a strong new banking group.” 

The Consortium is being advised by Greenhill & Co International LLP (“Greenhill”) and New Boathouse Capital, a subsidiary of Quayle Munro Holdings (“Quayle Munro Group”). 

This announcement does not constitute a commitment to proceed with the Proposal or any other transaction in respect of Northern Rock and, in particular, it does not constitute an offer for Northern Rock or an announcement of a firm intention to make an offer under Rule 2.5 of the Takeover Code. Accordingly there can be no certainty that the Proposal will result in any transaction or offer. 

Greenhill is acting exclusively for Virgin Management Limited and for no-one else in connection with the Proposal and will not be responsible to anyone other than Virgin for providing the protections afforded to clients of Virgin or for providing advice in relation to the Proposal or any other matters referred to in this announcement. 

Quayle Munro Group is acting exclusively for Virgin Management Limited and for no-one else in connection with the Proposal and will not be responsible to anyone other than Virgin for providing the protections afforded to clients of Virgin or for providing advice in relation to the Proposal or any other matters referred to in this announcement. 

Contact details: 

For more information contact: 

Virgin Group Nick Fox – 020 7229 4738 / 07711 727 618 
Greenhill & Co International LLP James Lupton / Edward Wakefield –020 7198 7400 
Quayle Munro Holdings Peter Norris / Andreas Wesemann –020 7471 3770 
M:Communications Nick Miles –020 7153 1530 / 07796 171 667 

Notes to Editors: 

Virgin Group 
Virgin, a leading branded venture capital organisation, is one of the world's most recognised and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on togrow very successful businesses in sectors ranging from mobile telephony to transportation, travel, financial services, leisure, music, holidays, publishing and retailing. Virgin has created more than 200 branded companies worldwide, employing approximately 50,000 people, in 29 countries. Revenues around the world in 2006 exceeded £10 billion (approx. US$20 billion). 

Virgin Money 
Virgin Money is Virgin’s financial services arm and was established in 1995.

Virgin Money has over two million customers and offers a wide range of financial products across lending (e.g. credit cards and personal loans), savings (e.g. deposits, investments and pensions) and protection (e.g. life insurance, home insurance and car insurance) to the UK market.

AIG Financial Products Corp. 
AIG Financial Products Corp. (AIG-FP) is a wholly owned subsidiary of American International Group, Inc., one of the world’s largest insurance groups and world leaders in insurance and financial services. Founded in 1987, AIG-FP was one of the first companies focused principally on the derivatives markets in the United States. AIG-FP is active in a full spectrum of OTC derivative and structured products markets, including commodities, credit, energy, equities, foreign exchange, and rates. As leading participants in the capital and derivatives markets, AIG-FP provides clients with corporate finance, investment, and financial risk management solutions. AIG-FP also acts as a principal investor in the energy and infrastructure sectors. AIG-FP’s clients include many of the world’s top corporations, investment managers, pension funds, banks, investment banks, sovereigns, hedge funds, foundations and endowments, as well as select high-net-worth individuals. With group offices in LondonParisTokyo, Hong Kong, and WiltonConnecticut, AIG-FP has extensive global reach. For additional information please refer to http://www.aigfp.com

WL Ross & Co LLC 
WL Ross and Co. LLC is a principal investment firm specializing in restructurings, buyouts, and industry consolidations. The firm invests in financially distressed companies. It seeks to invest with co-investors in case of larger transactions. WL Ross & Co LLC was founded in 2000 by Mr. Wilbur Ross and is headquartered in New York City 

WL Ross & Co. LLC was the lead investor in purchase and turning around the failed Kofuku Bank from the Japanese Government, rebranding it as Kansai Sawayaka Bank in Osaka 

Toscafund Asset Management LLP 
Toscafund Asset Management LLP, chaired by Sir George Mathewson, was founded in May 2000 by Martin Hughes. 

Toscafund concentrates on investment in financial service companies, being one of the leading funds of its type in Europe. Total funds currently invested exceed £3bn. The group is known to many executives of companies in which it has invested and is judged as a stable, productive shareholder due to its longer term fundamental research based investment philosophy. 

Sir George Mathewson 
Sir George Mathewson was born and educated in Scotland (BSc, PhD, St AndrewsUniversity) and has a wide background in finance, technology and management. He joined The Royal Bank of Scotland Group in 1987 as Director of Strategic Planning and Development and in 1990 was appointed Deputy Group Chief Executive. In January 1992 he was appointed Group Chief Executive and, following the acquisition of NatWest, Sir George was appointed Executive Deputy Chairman in March 2000. In April 2001 Sir George was appointed Chairman of the Group and retired at the AGM in April 2006. 

In November 2001 Sir George was appointed to the Board of Directors of the Institute of International Finance, Inc. and in June 2005 he became President of the International Monetary Conference. From 1981-87 Sir George was Chief Executive of the Scottish Development Agency, widely recognised for achievements in economic development and from 1972-81 he was with ICFC (now 3i), the leading UK development capital organisation. Prior to 1972, and after a period in academic life, he spent 5 years in the United States as a professional engineer with Bell Aerospace during which time he graduated MBA. 

Dealing Disclosure Requirements 
Under the provisions of Rule 8.3 of the Takeover Code (the “Code”), if any person is, or becomes, “interested” (directly or indirectly) in 1% or more of any class of “relevant securities” of Northern Rock plc, all “dealings” in any “relevant securities” of that company (including by means of an option in respect of, or a derivative referenced to, any such “relevant securities”) must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which the offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the “offer period” otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an “interest” in “relevant securities” of Northern Rock plc, they will be deemed to be a single person for the purpose of Rule 8.3. 

Under the provisions of Rule 8.1 of the Code, all “dealings” in “relevant securities” of Northern Rock plc by Virgin Group Holdings Limited or Northern Rock plc, or by any of their respective “associates”, must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction. 

A disclosure table, giving details of the companies in whose “relevant securities” “dealings” should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel’s website at www.thetakeoverpanel.org.uk 

“Interests in securities” arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an “interest” by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.