Cases & Deals

WL Ross and Virgin consortium acquires Northern Rock bank from UK Treasury for £1 billion (US$1.55 billion)

Client(s) WL Ross & Co. LLC

Jones Day represented WL Ross as lead investor in the £1 billion (US$1.55 billion) acquisition of Northern Rock plc from the UK Government.

WL Ross & Co. was the lead partner in a consortium, including Virgin Group, that provided the equity funding for the acquisition. The Government received £747 million in cash on closing and was entitled to an expected circa £50 million of cash within six months of closing. A further £150 million was paid by way of a capital instrument and additional cash consideration of £50-80 million is payable upon a future profitable IPO or sale within five years of closing. In total, the Government has the potential to receive more than £1 billion.

A number of complex issues arose during the transaction which required a multi-disciplinary approach by Jones Day and an understanding of, and sensitivity to, the interplay between UK and European legal and regulatory requirements and commercial practice on the one hand, and, on the other, the commercial priorities of, and the local legal and regulatory considerations affecting, our U.S.-based client. These included: the consequences for the deal and WL Ross of the requirement to seek European competition clearance for the transaction given the size of WL Ross' existing business interests in Europe; assisting WL Ross with the Financial Services Authority ("FSA") (now the Financial Conduct Authority) approval process necessitated by the increase in its shareholding in Virgin Money and the framing of the relevant condition in the purchase agreement with the Government; assisting WL Ross with its assessment of the due diligence undertaken on Northern Rock and, notably, the separation arrangements put in place pursuant to the Northern Rock plc Transfer Order 2009.

Under this Order, the business of the original Northern Rock bank (the entity taken into temporary public ownership by the Government in 2008) was split into two: Northern Rock (Asset Management) plc ("NRAM") and Northern Rock plc, the latter (the entity acquired by Virgin Money) containing the retail and most of the wholesale deposit business, a proportion of its unencumbered mortgages and its mortgage origination and servicing platform. An assessment of these arrangements was important to ensure that the business being acquired was shielded from historic liabilities of the original Northern Rock and those of NRAM.  Jones Day also assisted in negotiating the provisions entitling the Government to receive additional consideration following closing; agreeing the terms of the £150 million debt instrument issued to the Government which was structured, with the approval of the FSA, so as to constitute part of Virgin Money's Core Tier 1 Capital; and agreeing the scope of the warranties to be provided by the Government.