THERE is growing disquiet among investors in Northern Rock about the terms of the Virgin Group-led consortium’s bid to take over the stricken mortgage bank.

Investors, thought to include Legal & General and Schroders, as well as hedge funds RAB Capital and SRM Global, have become increasingly concerned at the consortium’s claim that Virgin Money is worth £250m.

Virgin Money will be injected into Northern Rock as part of Virgin’s rescue plan.

Another sticking point is the £8m to £10m annual fee Virgin Group will charge for the use of its brand. RAB and SRM are also strongly opposed to the Virgin bid since its proposed deeply discounted rights issue at about 25p per share would dilute existing shareholders and hand the consortium around 54% of the shares.

Virgin believes it can win over shareholders and is preparing a charm offensive. The group will also release figures in the next few weeks showing strong growth at Virgin Money in an attempt to support the valuation. In 2006, Virgin Money made a £9m profit.

However, shareholders have made it clear that unless the Virgin offer is improved they will vote it down.

Many investors strongly disagree with Virgin’s assertion that the Northern Rock brand is irredeemably damaged and the bank would be stronger under the Virgin banner. Instead, they support the survival of the Northern Rock name.

The rival proposal by Northern Rock’s management led by Paul Thompson, who would be chief executive, is continuing to gather support. The Tyne consortium, which includes American private-equity firm Five Mile, is committed to underwriting £200m of a rights issue while other shareholders have committed to invest £500m. The management team’s rights issue is likely to be a two for one offer priced at between 55p and 60p per share.

Though Virgin is planning to inject £1.25 billion through its own funds and from a rights issue, Thompson believes that between £500m and £750m is enough to recapitalise the bank.

Thompson is also planning to recruit a new chairman to replace Bryan Sanderson within the next few months and working on hiring a high-profile finance director.

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