Branson 'to make increased offer for Northern Rock'

Richard Branson's Virgin Group is today reportedly planning a sweetened bid for Northern Rock as the British government is poised to outline financial support for a private sale.

Richard Branson's Virgin Group is today reportedly planning a sweetened bid for Northern Rock as the British government is poised to outline financial support for a private sale.

The Virgin-led consortium is understood to be working on an improved offer to gain the support of shareholders in the stricken bank, according to The Sunday Times newspaper.

The report comes ahead of tomorrow's British parliament statement from Chancellor Alistair Darling, which will set out plans to convert Northern Rock's £24bn (€32.1bn) of Bank of England emergency loans into bonds and sell them to international investors.

Mr Darling is also expected to give Northern Rock's suitors, Virgin and Olivant, two weeks to table plans for financing and management.

The proposals today however drew accusations of nationalisation by the back door from Liberal Democrat treasury spokesman Vince cable.

He told Sky News's 'Sunday Live': "This is not a private sector solution. The private sector isn't taking any risks. It is the taxpayer that is taking all of the risks."

He added: "The Government seems to have mishandled this dreadfully. We have a combination now of being taken in for what's little better than a confidence trick, primarily in order to help the Government to save face and I think they will be found out."

The Government's financing package - drawn up by investment bank Goldman Sachs - would provide a boost to Virgin and Olivant, which are said to have struggled to find finance amid the global crisis in credit markets.

Northern Rock's shareholder base still presents a significant hurdle to any private sector sale however, with the approval of the bank's investors needed to secure a takeover.

Last week's high profile shareholder meeting in Newcastle showed that investors are determined to have their voices heard in the Northern Rock saga.

The bank's rebel shareholders, hedge funds RAB Capital and SRM Global, failed to see their three key demands for a greater say in the bank's future voted through.

Growing unrest among investors over likely compensation in the event of a takeover could provide a sticking point.

Robin Ashby, head of the Northern Rock Small Shareholders Group, yesterday warned that it was unlikely Virgin's current offer would be accepted.

It is believed that Virgin last week met with RAB chief executive Philip Richards, which encouraged the consortium to better its bid.

Virgin, which would rebrand Northern Rock under its Virgin Money offering, is already thought to have indicated that it would take less equity in the troubled lender, cutting it from 54% to 45%.

Branson yesterday said he was in pole position in the takeover battle, although Virgin was unavailable for comment today.

The Virgin boss was part of the business delegation accompanying British Prime Minster Gordon Brown on his official visit to China and India.

Branson, speaking in New Delhi after a business leaders summit, rejected any suggestion he had had secret talks with Mr Brown about Northern Rock.

He told reporters: "I'm on this trip for the sole reason that we have been having relationships with China, relationships with India.

"I have spent no one-to-one time with Gordon Brown. It will be the Treasury who will make the decision, alongside shareholders, alongside other people."

However, Olivant's plans are widely seen as the shareholder's favourite, as it would not involve a takeover or break up of Northern Rock, instead parachuting in a new management team in return for an equity stake.

Meanwhile, Northern Rock's board is believed to be working on "self-help" plans that would see the bank scaled down, with funding raised by way of a rights issue from investors.

Northern Rock chairman Bryan Sanderson admitted last week that any such plans would involve continued support from the Bank of England for two to three years.

Northern Rock ran into trouble last autumn after its funding lines all but dried up amid the credit crunch, which gripped wholesale money markets.

The group was forced to turn to the Bank of England as lender of last resort, which sparked panic among depositors in the bank and saw the UK's first bank run in nearly 150 years.

It has borrowed an estimated £26bn (€34.8bn) in emergency funding so far, although it sold more than £2bn (€2.6bn) worth of mortgages to JP Morgan - the US investment bank which has just hired former prime minister Tony Blair - to ease its burden.

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