WL Ross, Virgin beat JC Flowers to Northern Rock

Financial services specialist JC Flowers has failed again to acquire the retail arm of UK bank Northern Rock, after the UK Treasury sold it instead to Virgin Money and WL Ross for £747m.

JC Flowers had been among the final round bidders for the UK bank Northern Rock, having previously attempted to buy the stricken bank in 2007 before it was nationalised.

Virgin Money and distressed investment specialist WL Ross & Company will together pay £747 million (€873 million; $1.2 billion) in cash for the bank, with a further £50 million within six months of completion. The UK Treasury will retain a £150 million stake in the business, and a further £50 million to £80 million will be payable by Virgin in the event of a future profitable IPO or sale of the business within five years, according to a Treasury statement.

Despite the additional payments, the deal still represents a loss for the UK state, which injected £1.4 billion to rescue the bank in early 2008. Northern Rock Asset Management, which holds Northern Rock’s ‘bad debts’ – mortgages and unsecured loans – remains under state ownership.

WL Ross owns a 21 percent stake in Virgin Money, reportedly obtained for about £100 million last year. The pair had tabled a bid for Northern Rock in 2007.

As part of their successful bid, Virgin and WL Ross also offered guarantees there would be no further compulsory redundancies at the bank for at least three years, other than those already announced. It also agreed to maintain the number of branches currently in operation.

It is unclear whether JC Flowers had been willing to offer similar concessions, or whether it was beaten simply on price. Neither the UK Treasury nor JC Flowers had returned calls by press time.

JC Flowers had attempted to buy the bank in 2007, assembling an impressive management team led by former Marks & Spencers chairman Paul Myners, which it had planned to parachute in to help rescue the business.

However, the British state ultimately stepped in to acquire the bank rather than allowing it to remain in private hands. Other firms linked to a bid for the bank at the time included The Blackstone Group and Cerberus Capital Management.

For its second bid to acquire the bank, JC Flowers had reportedly arranged financing from the China Investment Corporation, a Chinese state-backed fund.