Virgin offers to help Northern Rock, create Virgin Money

A consortium headed by Richard Branson's Virgin Group . submitted a plan to rescue Northern Rock on Friday, proposing a cash injection that would see the struggling mortgage lender rebranded as Virgin Money.

Virgin has put together a consortium of U.S. and Asian investors, including AIG Financial Products, proposing that the Virgin Money brand be transferred to Northern Rock in return for equity. When that transaction is completed, Northern Rock will be renamed and rebranded Virgin Money.

If completed, the consortium would inject "substantial new equity" into Northern Rock, it said.

"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 break up or partial solution," it said in a statement.

Virgin's offer is the first on the table for Northern Rock following 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 announced it had requested emergency funding from the Bank of England. Its customers panicked and lined up to withdraw their deposits last month. The British government stemmed the bank run only days later when it stepped in to guarantee deposits of Northern Rock savers.

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 that "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.

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