The time-frame for the potential sale of Northern Rock to a consortium led by Sir Richard Branson's Virgin Group is expected to be unveiled later.
Northern Rock has confirmed that it has chosen a consortium led by Sir Richard Branson's Virgin Group as its preferred buyer for the stricken bank.
The BBC has learned that the bank will name Virgin as its preferred bidder, but a deal will take weeks to finalise.
Virgin's offer - which has been backed by the Treasury - includes an immediate repayment of £11bn of the £25bn the bank owes the Bank of England.
Virgin's bid includes an immediate repayment of £11bn of the £25bn the bank owes the Bank of England.
If the bank's shareholders block the deal it could be nationalised or be taken into administration.
If the bank's shareholders block the deal - which has Treasury approval - it could be taken into administration.
Northern Rock hit funding difficulties after world credit markets dried up.
'Best deal'
The Virgin offer proposes an injection of £1.3bn of new cash into the Rock, with half of that money coming from the consortium.
BBC business editor Robert Peston said: "Right to the last, the Treasury has been considering a radical alternative, which was to nationalise the bank.
The remainder would be raised through an offer to existing Rock shareholders to buy new shares for 25 pence each.
"But it appears to have decided that taxpayers' interests are more likely to be protected by a private-sector solution."
Virgin would then repay the remaining £14bn of Treasury loans over the next three years.
Branson could not profit from our misery, even though some will doubtless accuse the Treasury of using our money to help him make spectacular potential long-term gains The BBC's Robert Peston Read Robert Peston's blog
He said Virgin was proposing to repay £11bn to the Bank of England immediately using loans from a syndicate of banks led by Citigroup and Royal Bank of Scotland, with the rest of the money be repaid over the next three years.
Our correspondent has also learned that Virgin is planning to inject around £1.3bn of cash into the business, in return for new shares priced at 25p.
On that basis, Virgin values Northern Rock at £200m, considerably less than its current market value of £362m.
Virgin would end up with 55% of the bank, leaving current shareholders with 45%.
Our correspondent added that the time-frame for the takeover will be weeks, not days, with much of the deal's fine print still to be settled.
Of the 10 expressions of interest from financial institutions in taking control of Northern Rock, Virgin's was said to be preferable because it offered the best deal to the stricken lender's shareholders.
If investors, which include hedge funds RAB Capital and SRM Global, are unhappy with the terms offered and resist the deal, the company and the government could say that the only alternative left is to put the bank into administration under insolvency procedures.
"If the Rock went into administration, shareholders might end up with nothing," our correspondent added.
Solution in sight?
The Treasury has been under mounting pressure to agree on a solution for Northern Rock following criticism over the length of the sales process.
The Conservatives and Liberal Democrats have voiced concern over the likelihood of the hefty taxpayer-backed Bank of England loan, which has been propping up Northern Rock since September, ever being repaid.
In a letter to Bank of England Governor Mervyn King, Lib Dem acting leader Vince Cable had said that further delays in resolving the bank's future were "unacceptable".
He argued the best way to safeguard the billions of public money on loan to Northern Rock was for the government to temporarily take control of the stricken bank and then sell it in due course.
Over a fraught weekend, officials from the Treasury, the Financial Services Authority and the Bank of England grilled a number of suitors on their plans to save the troubled lender.
In the end, it came down to a two-horse race, between the Virgin team and a proposal made by US buyout firm JC Flowers, Mr Peston said.
Virgin deal
Under the terms of the Virgin bid, the Bank of England will keep an emergency credit line in place to be paid off on the same terms as a commercial loan arranged by Citigroup and Royal Bank of Scotland, he said.
This has been arranged by the consortium, which includes insurance firm AIG, to refinance part of the Bank of England loan and avoid it being viewed as illegal state aid.
If a deal is successful, the government will continue to guarantee Northern Rock's savings deposits, both new and existing, for three months after which time it will withdraw the facility.
Virgin has agreed it will only pay itself "normal" dividends from Northern Rock until all public money is repaid - thus avoiding the potential embarrassment for the Treasury of the group making spectacular profits with the help of the taxpayer-backed loan.
The new company would be rebranded Virgin Money, though it would keep its existing stock market listing.
Former boss of Lloyds TSB, Sir Brian Pitman, would be the bank's chairman.
Resistance
But Virgin's plans could still be thrown into disarray by the bank's largest shareholders.
Hedge funds RAB Capital and SRM Global, which together own about 13% of Northern Rock's shares, have warned that they would not support a fire sale of all or part of the bank's assets.
They have indicated that they preferred to wait for the crisis-hit credit markets to settle down before considering a sale.
RAB Capital's chief executive Philip Richards told the BBC that he would vote against a proposed takeover of Northern Rock that would "wipe shareholders out or nearly wipe shareholders out".
A group representing individuals with small holdings in the bank has also said it will need to see the details of the Virgin Mobile bid before they give their support.
"If we feel that we are being entirely ripped off, ripped out, kicked out of the long term, then shareholders may not be happy to just to roll over and go along with these people who it has been reported are preferred bidders," Robin Ashby of the Northern Rock Small Shareholders Group told the BBC.
