Okay, so it wasn’t a publicity stunt. Richard Branson’s Virgin group on Friday disclosed details of its proposal to take over Northern Rock, re-naming the business Virgin Money and generally getting everyone – from Westminster to Canary Wharf, via Threadneedle St – off the hook.
And the names on the deal mean we must take the proposal very seriously indeed. While Virgin will contribute its brand, the real financial underpinning is coming from insurer AIG, distressed buyout specialist Wilbur Ross, Hong Kong investor First Eastern Investment Group and Toscafund, the hedge fund led by former RBS chairman Sir George Mathewson.
The downside, for shareholders at least, is that the Virgin consortium wants to structure this as a partial reverse takeover – with a “substantial cash sum” being injected at a discount to the current share price. What’s more, the consortium doesn’t want the responsibility of buying out the existing equity holders – it will be applying for a so-called “whitewash” under the British takeover code, which stipulates that anyone buying more than 30% of company must offer all other shareholders the same terms. Rock will remain a listed entity.
So what will Virgin do with the business? Re-brand it, obviously, as the statement makes clear:
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.
Jayne-Anne Gadhia, the current chief executive of Virgin Money and formerly boss of the Virgin One offset mortgage business that was sold to RBS, is standing by ready to run the show.
Her financial backers, meanwhile, have serious form. AIG ranks as the world’s largest insurance group, while Sir George Mathewson is a fully fledged, full colour banking grandee. Wilbur Ross, of WL Ross, while probably best known for his rescues of bust steel businesses, has been eyeing opportunities from the inevitable bursting of the credit bubble for some time – as he told the FT’s Chrystia Freeland back in April in a View from the Top interview.
First Eastern Investment Group is less well known in the UK, although the immediate assuption in the City was that this is Chinese money — and therefore there is lots of it. There’s a Davos interview with the group’s chairman and chief executive, Victor Chu, on You Tube.
All we need now is a price and an indication of how much fresh equity. But with a growing queue of would-be rescuers seemingly ready to tap Citi’s £25bn “liquidity finance” package, the former bank really could be back in business soon. Clearly, Merrill Lynch, and other Crockettes sifting through the offers, have a busy weekend ahead.