Friday, 12 October 2007

It is all about Virgin

A quick update for those who are not familiar with Northern Rock. It is a UK based bank that has experienced problems in the last couple of weeks and has already borrowed an estimate of £13 billion in emergency funds from the bank of England. Shares have fallen at this Plc Bank and it appears that it (Northern Rock) is in serious problems if no solution can be found.

Sir Richard Branson’s Virgin Group is in talks to take over Northern Rock, the stricken mortgage bank. It is understood that the mobile phones and flights Tycoon is in discussions with a group of Middle East and US investors about forming a consortium that will inject cash into the bank in exchange for a controlling stake.

One source close to the talks said: "Virgin is looking at Northern Rock and considering its next move." If successful, Virgin would take over the day-to-day management of the business and bring it under its Virgin Money brand, which offers mortgages, credit cards and insurance services. The group has met Northern Rock’s management and could make a statement about its intentions as early as today. “Virgin are taking it very seriously and they are credible,” one person with knowledge of the negotiations said.

Virgin is the latest suitor to emerge for Northern Rock, which went into financial meltdown after it was forced to seek emergency funds from the Bank of England last month. It prompted the first big run on a British bank in more than 100 years. Other bidders, including two American investment groups, JC Flowers and Cerberus, are also understood to be circling the Newcastle-based bank. A fourth, as yet unnamed, suitor has also met Northern Rock’s management, and several US private equity firms, including The Blackstone Group, Lonestar and Apollo are also believed to be circling.

No formal proposal has been tabled and sources say that any deal is weeks or months away. Virgin is believed to be putting together a financing package that could also include debt from Citigroup, the US bank that has agreed to be on standby to lend as much as £10 billion to Northern Rock or bidders for the company. Earlier this week it emerged that other banks were also in talks about a funding package that could top £25 billion. Virgin will not formally bid for the bank. The plan is to take control of Northern Rock through the issuance of new shares that will be given to the investor group. The news of Virgin’s approach came as it emerged that Northern Rock had borrowed a further £2.3 billion from the Bank of England, bringing the total borrowed so far to £13 billion.

In a move to halt the run on Northern Rock, the Bank of England has promised to guarantee all depositors including new joiners since the crisis took hold. The guarantee and the line of credit are designed to smooth the sale or give Northern Rock time to rebuild itself as an independent business. (source: The Times)

After trying to raise enough money, Virgin Mobile USA, the mobile carrier part-owned by Sir Richard Branson has finally raised $412.5 million (£203 million) in an initial public offering that was priced at the bottom end of the forecast range. On the debut morning of this joint-venture between Sir Richard’s Virgin Group and Sprint, the US mobile operator, shares rose to $16.63, which is up 10.8% on their float price. The joint-group is valued at about $1.3 billion (£650 million). A total of 27.5 million shares were sold for $15 each, compared with a forecast range of $15 to $17 a share.

Virgin Mobile USA will use the deal proceeds to pay down debt. Since its launch in 2002, the carrier has established itself as one of the country’s fastest-growing mobile operations, winning nearly five million customers. Virgin Mobile USA pioneered the “virtual” operator model, under which a company avoids the expense of building its own network by using an existing player’s network. Operating revenue in the first six months of 2007 rose 23% to $666.9 million (£333 million), compared with the same period a year ago, while its net income doubled to $26.5 million. (source: Timesonline)

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