Two bidders left in battle to control Northern Rock

The British government is left today with just two options if it is to avoid nationalising the stricken Northern Rock bank after one of the main contenders pulled out hours before the bid deadline.

Richard Branson’s Virgin Group and the bank’s own board are now the only contenders to rescue the Rock after Olivant withdrew yesterday in a shock 11th-hour decision.

The investment group, headed by former Abbey chief executive Luqman Arnold, said it had failed to come up with an offer that could satisfy its investment needs, the Government’s financing terms and the interests of Northern Rock stakeholders.

And despite earlier hopes that others may enter the race, no new potential white knight came forward with a plan for the bank.

Olivant’s decision to pull out came on deadline day for final bids and sent shares in Northern Rock plummeting 8%.

The group was one of the long-standing serious suitors in the race to secure Northern Rock and had widely been seen as the shareholder favourite.

Virgin, meanwhile, confirmed it had lodged a formal proposal, as did the bank’s board.

Virgin’s plans would see Northern Rock rebranded as Virgin Bank.

The consortium said its proposal offered a “sound” solution for the troubled Newcastle lender that would protect taxpayers interests and give shareholders the chance to invest further in the group at the same price as the consortium.

It did not reveal how much equity it would take in the bank if its bid succeeded, which has been a contentious issue.

It is thought that shareholders were unhappy with its initial bid plans to take a stake of up to 55% and Virgin had reportedly been planning to cut this to 45% in the final bid.

Virgin Money boss Jayne-Anne Gadhia, who has been lined up by the consortium to head Northern Rock as chief executive should the bid win through, said: “We believe our proposal meets all of the Tripartite Authorities’ announced objectives.”

Virgin said it aims to inject £1.25bn (€1.67bn) of new equity into Northern Rock, with £500m (670m) being raised through offering shareholders new shares at 25p each.

However, it did not disclose any details of the impact on Northern Rock’s 6,500-strong workforce.

The bank’s “self-help” bid put forward by the board would see the bank kept as a stand-alone entity, but in a restructured and slimmed-down form.

Northern Rock’s management outlined a two-pronged turnaround plan for the bank, although it too remained tight-lipped on potential job losses.

It said it would seek to raise at least £500m (€670m), reduce the assets on Northern Rock’s balance sheet and reorganise the operations.

Phase one would see the bank stabilised and the management team strengthened, with Paul Thompson – a former boss of insurer Resolution – appointed as chief executive.