Branson Offers to Buy Northern Rock (Bloomberg)

Virgin-Led Group May Buy Control of Northern Rock (Update2)

By Jon Menon and Ben Livesey

Oct. 12 (Bloomberg) -- Virgin Group Ltd., U.K. billionaire Richard Branson's holding company, plans to buy control of Northern Rock Plc and combine the beleaguered mortgage lender with its consumer-finance unit. Terms of the proposal weren't disclosed.

Virgin will team with American International Group Inc., Toscafund Asset Management LP, First Eastern Investment Group and WL Ross & Co. to resolve Northern Rock's ``current liquidity challenges,'' the London-based company said today in a statement. Northern Rock has lost 57 percent of its market value since Sept. 14, when the company was bailed out by the government.

Since calling on the Bank of England for emergency credit last month, Northern Rock Chief Executive Officer Adam Applegarth has struggled to keep the bank in business as potential bidders including buyout firm J.C. Flowers & Co. consider offers. The government earlier this week extended guarantees on customer deposits at the bank.

``On the face of it, it doesn't look like a great deal,'' said Colin Morton, a Leeds, England-based fund manager at Rensburg Sheppards. ``The market is obviously hoping that someone will come in with something better,'' said Morton, who helps manage about $1.8 billion. He doesn't hold Northern Rock shares.

Northern Rock shares added 5.6 percent to 272.5 pence as of 4:02 p.m. in London, valuing the company at 1.15 billion pounds ($2.34 billion).

No `Partial Solution'

The Virgin-led group will ``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,'' Virgin said.

Under the proposal, ``a substantial cash sum will be injected into the company for new equity to be issued at a discount to the current share price,'' Virgin said in the statement.

Virgin Money would be transferred Northern Rock in return for equity and the company would be rebranded as Northern Rock, Virgin said. Jayne-Anne Gadhia, chief executive officer of Virgin Money, would lead the company, Virgin Money said.

``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,'' Branson said in the statement.

Branson's operations include carrier Virgin Atlantic Airways Ltd. and wireless-phone venture Virgin Mobile USA Inc.