Consortium offers rescue plan for ailing British lender Northern Rock

A consortium headed by billionaire Richard Branson’s Virgin Group Ltd. offered to rescue Northern Rock by proposing a plan Friday to inject cash into the struggling mortgage lender and rebrand it Virgin Money.

Under the plan, put forward by a consortium of Asian and U.S. investors led by Virgin, Northern Rock would be renamed in return for equity.

“It is the consortium’s intention to maintain Northern Rock’s listing, to retain the business in its entirety, to add to it and to grow it in the future rather than seeking a breakup or partial solution,” the consortium said.

If the transaction were completed, the consortium would inject “substantial new equity” into Northern Rock, it said.

Virgin’s offer is the first on the table for Northern Rock after speculation about several potential bids from private equity firms including Apollo Management, Blackstone Group, Lone Star, J.C. Flowers & Co. and Cerberus Capital Management.

The mortgage lender has been searching for a buyer since last month, when it issued a profit warning and said it had requested emergency funding from the Bank of England after the collapse of the sub-prime mortgage market.

Then its customers panicked and lined up to withdraw their deposits. The British government stemmed the bank run days later when it stepped in to guarantee deposits of Northern Rock customers.

Branson’s Virgin Group entered the financial services sector in 1995 and now offers credit cards, insurance, savings and pensions. A deal with Northern Rock would significantly beef up its Virgin Money division.

“We have the opportunity to make a fresh start and build a renewed, confident future for the business and its tremendous staff as a continuing independent public company,” Branson said. “We have confidence in the British economy going forward, and we are determined to preserve one of the last remaining truly independent U.K.-owned competitive forces in banking, mortgages and other financial services.”

Virgin said “a substantial cash sum” would be injected into Northern Rock for new equity to be issued at a discount to the current share price.

“These issues of new equity would be conditional on the current shareholders approving a ‘whitewash’ of the provisions of . . . the Takeover Code, which would otherwise require the consortium to make a takeover offer for the company’s existing share capital,” it said.