The British Government announced Thursday the sale of troubled bank Northern Rock Plc (NHRKF.PK) to Virgin Money, as part of its strategy to create safer ring-fenced banks and more competition for customers. The Government will receive 747 million pounds or about $1.18 billion in cash as sale proceeds, with the potential to receive over one billion pounds in total in the future.
The deal with Virgin Money, a UK-based financial services company owned by the Virgin Group, will bring taxpayers 747 million pounds in cash on closing, plus an expected 50 million pounds of cash within six months of completion. A further 150 million pounds will be paid in the form of a capital instrument and 50 million to 80 million pounds will be paid as an additional cash consideration upon a future profitable IPO or sale in the next five years.
The combined business of Northern Rock and Virgin Money will lead to a new competitor in the UK retail banking sector. The sale represents a significant step in returning public sector stakes in banks to private sector.
However, the sale will not affect current customers of Northern Rock and can continue to operate their accounts with the same terms and conditions.
The sale is said to be in the best interests of taxpayer and will secure long-term future of the company. The sale is also expected to increase competition in the banking sector and will help increase diversity in the retail banking sector, as Virgin Money intends to innovate and expand into new market segments.
Chancellor of the Exchequer, George Osborne said, "The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks. It represents value for money; will increase choice on the high street for customers; and safeguards jobs in the North East."
Virgin Money's decision to proceed with the sale was based on advice from UK Financial Investments and their independent advisers, after considering all bids and other relevant options. Virgin Money has made various commitments including no further compulsory redundancies, beyond those already announced, for at least three years from completion and making Newcastle the operation headquarters for the combined business.
The sale is expected to be completed on January 1, 2012, subject to EU merger clearance and approval by the Financial Services Authority.
It was on February 22, 2008 that the shares of Northern Rock were transferred into temporary public ownership, by an order made under the Banking (Special Provisions) Act 2008.
On January 1, 2010, Northern Rock was split into two separate entities: Northern Rock Plc, a new savings and mortgage bank authorized as a mortgage lender by the FSA; and Northern Rock (Asset Management) Plc.
The Government said it has no plans to sell Northern Rock Asset Management.
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