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Virgin Group gets UK backing to buy Northern Rock

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Bloomberg News / November 27, 2007

LONDON - Richard Branson's Virgin Group Ltd. won British government support to buy Northern Rock PLC, the mortgage lender bailed out two months ago by the Bank of England.

Northern Rock rose 28 percent in London trading after saying yesterday that Virgin offered immediate repayment of $22.7 billion to the central bank. Virgin would also inject $2.7 billion into Northern Rock, half funded by new shares offered to existing holders.

"We now have a deal that will start to provide some confidence," said Piers Hillier, head of European equities at WestLB Mellon Asset Management in London. "It will probably go to the Virgin group, but maybe there are some last-minute parties who will throw their hat in the ring," said Hillier, who helps manage about $6 billion in European equities.

Virgin, which would combine the Newcastle, England-based bank with its Virgin Money unit, is leading a group that includes billionaire Wilbur Ross, American International Group Inc., Toscafund Asset Management LP, and First Eastern Investment Group. The combination would leave the Virgin-led group with as much as 55 percent of the company, Northern Rock said.

Virgin competed with J.C. Flowers & Co., Olivant Advisers Ltd., and Cerberus Capital Management, a US private-equity firm. Northern Rock is "continuing to explore other options as part of its strategic review," the company said.

Olivant will enter formal talks with the UK government, the Bank of England, and the Financial Services Authority to discuss a takeover of Northern Rock, the London Times said without saying where it got its information.

The move could jeopardize Virgin's proposal, the newspaper said.

Northern Rock is down 83 percent since Sept. 14, when it sought emergency funding from the Bank of England.

The proposal will "stop the business being broken up and disbanded, saving thousands of jobs," Branson said in a letter to Northern Rock customers yesterday.

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