The troubled British mortgage bank will try to close a takeover deal with its first-choice suitor, a Virgin Group-led consortium
Sir Richard Branson's Virgin consortium was today confirmed as the preferred bidder for troubled mortgage bank Northern Rock.
Northern Rock will now enter into detailed talks with the Virgin Group-led team, which was chosen from a number of suitors vying for the bank.
Northern Rock could be rebranded as Virgin if the offer wins through.
Virgin's deal will see £1.3 billion of funds injected into the group in return for a controlling stake, with plans to pay back £11 billion of the estimated £25 billion Bank of England loan immediately.
The consortium did not reveal a takeover price, but it did say it would look to raise funds by offering new shares at a price of 25p each -- less than a third of the current value.
Bryan Sanderson, chairman of Northern Rock, said the bid was "very good news for Northern Rock".
He added: "I am grateful for the support that we have had from customers and employees who have stayed loyal to us during these difficult times, and pleased that a solution that firmly restores the company's prospects has been identified."
But this will not resolve all the questions about Northern Rock's future as investors -- large and small -- may still try to block the deal.
The Treasury is said to be growing impatient with the sales process and wants the issue resolved before Christmas, it was reported yesterday.
It could yet decide to step in and nationalise the bank if the buyers do not agree to repay the Newcastle-based group's debt burdens of around £23 billion under terms favourable to the taxpayer, the paper added.
Sir Richard's bid is understood to depend on continued support from the taxpayer for two to three years.
Major shareholders are likely to be all but wiped out after the company said last week that the proposals received were "materially below" Northern Rock's market value.
But the bank and the Government are reportedly set to make it clear that the alternative to Virgin's bid would be for the bank to go into administration under insolvency procedures, which could leave investors with nothing.
About 100,000 of Northern Rock's small shareholders wrote to chairman Mr Sanderson yesterday to express concerns that directors were planning a "fire sale" of assets.
In a letter signed by Lord Stevens of Kirkwhelpington, honorary president of the Northern Rock Small Shareholders Association, they called for an extraordinary general meeting.
The investors wrote: "We have made it clear in the past that our preferred outcome is an independent, publicly-quoted, Northern Rock based in the North East, which supports good quality jobs and the continuation of the Northern Rock Foundation.
"The options which we would oppose would be a sale of the company as a whole or piecemeal, or any move such as administration or nationalisation, which would expropriate the shareholders' stake or so dilute it as to be the equivalent.
"We very much deprecate the driving down of the share price to meet expectations about future price, which seems to favour the interests of some potential bidders above existing shareholders.
"We would therefore support moves to call an extraordinary general meeting to ensure that directors do not undertake a 'fire sale' of assets or major restructuring for which shareholder approval has not been secured."
Meanwhile, the biggest declared shareholder, hedge fund RAB Capital, has threatened to block any deal to restore stability to the troubled bank that would not deliver value for money for shareholders.
Chief executive Philip Richards said: "It would be totally inexcusable for this Government to deliberately force this bank into administration."
Investors favour plans from former Abbey chief Luqman Arnold's Olivant group, which plans to buy a minority shareholding and turn the business around with a heavyweight management team.
The Government's continued support for Northern Rock drew fresh criticism from acting Liberal Democrat leader Vince Cable.
Mr Cable wrote to Bank of England Governor Mervyn King to ask for assurances about the security attached to taxpayers' money loaned to Northern Rock and the interest rates being charged.
He said: "Taxpayers cannot be expected to continue to prop up this sinking ship, especially as much of our money is likely to get lost at sea."
Northern Rock's woes began in the summer's financial turmoil, which froze up the money markets where the bank borrows most of its cash for mortgage lending.
Banks fearful of exposure to losses on investments based on high-risk US mortgage debt became much more cautious about lending to each other.
The lender was worth more than £5.2 billion in February this year but the beleaguered bank is now valued at just £360 million.