Northern Rock's share price surged 57% this morning after the troubled British bank named a consortium led by tycoon Richard Branson's Virgin Group as its favoured saviour.
The bank decided against making its so-called preferred bidder the British investment firm Olivant Advisors. Private equity groups and US billionaire investor Warren Buffett were also rumoured to have considered a bid for the bank.
A takeover by the Virgin consortium would inject £1.3 billion sterling into Northern Rock in return for a controlling stake in the lender, which has suffered badly from a global credit squeeze.
Under its terms, the Virgin consortium would also immediately repay £11 billion of an estimated £25 billion owed by Northern Rock to the Bank of England.
Northern Rock has borrowed the money in emergency funds since September, when it fell victim to the global credit crunch, leading to the first run on a British bank for more than a century.
Northern Rock chairman Bryan Sanderson said the consortium's plan was 'very good news' for the bank. The consortium's offer of 25 pence per share would value Northern Rock at about £105.3m.
Northern Rock, once Britain's eighth-biggest bank, disclosed in September that the global credit shortage had forced it to seek emergency support from the Bank of England. The news sparked the first run on a British banking institution in living memory, as panicking customers rushed to withdraw their savings.
The clamour died down after the British government vowed to protect existing and new deposits at Northern Rock. In recent months, commercial banks have become very nervous about lending cash to each other amid fears over possible exposure to the US housing market slump, creating a so-called credit squeeze.
Virgin said it did not plan to make any 'material reductions' to Northern Rock's 6,000-strong workforce and will keep the bank's headquarters in Newcastle.
Northern Rock said its board will continue to explore other options as part of its strategic review. Other suitors for the company included US buyout firm JC Flowers.
Northern Rock could be rebranded as Virgin if the offer wins through.
Virgin's consortium also includes buyout firm WL Ross, investment group Toscafund and Hong Kong-based investment group First Eastern.
Shares in Northern Rock finished up 28% in London this evening.
