Branson cuts value and size of issue to get phone float away

IPO blues: Virgin Mobile and Premier Brands both forced to drop price to save share issues
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The Independent Online

Richard Branson yesterday slashed both the price and size of his float of Virgin Mobile, as investors remained unimpressed by the company's growth prospects.

Richard Branson yesterday slashed both the price and size of his float of Virgin Mobile, as investors remained unimpressed by the company's growth prospects.

After vowing last week that he would not back down on price, Mr Branson now plans to sell only a quarter of his mobile business for £137.5m. Until yesterday, he had planned to raise £279m from selling nearly 40 per cent on to the open market.

Faced with lacklustre interest and the prospect of having to pull the float entirely, bankers to Virgin yesterday advised the group to reduce the price range. Having conceded on price, Mr Branson was then understood to be reluctant to give away as much of the business and decided to lower the number of shares on offer. "The group does not need the money, so it decided to continue with the float at the lower price. It still has the option to sell more shares later when the price is higher," a source close to Virgin said yesterday.

Virgin now plans to sell 62.5 million shares for between 200p and 220p, compared to the previous range of 235p-285p and a sale of 98 million shares. This will give the group a market capitalisation of between £500m and £550m. Initial float plans had hoped the business would have an equity value of as much as £1bn.

The news will hit the multi-million pound windfall for Tom Alexander. The chief executive of Virgin was in line for a £20m pay out from the float but he will now get £17.5m. Of this, £6.5m is a fixed cash bonus, while Mr Alexander will now receive around £11m worth of shares.

Downbeat equity markets were blamed for the price cut, as well as the run of flotations which has made fund managers more choosy over what they are prepared to support. "Fund managers are in a very strong position - it is a buyers' market and they are being very vocal about what they think of a company," Jim McCafferty, an analyst at Seymour Pierce, said yesterday. "There is also a perceived need from Virgin to re-establish its presence on the stock market, so fund managers have been exercising their power."

But Virgin Mobile, the fifth largest mobile group in the UK, has also suffered from negative sentiment, with many analysts sceptical as to whether the original valuation was warranted.

"The UK mobile market is very mature - everyone who wants a mobile has already got one and so it is difficult to see where Virgin is going to get its customers from. The story for growth is now much lower than it was. There is also a lot of competition, and players like 3 are being very aggressive on price," Mr McCafferty said.

Analysts at ABN Amro have also had misgivings over the price range attached to Virgin. They have cited Virgin's lack of geographical spread beyond the UK, and believe its focus on pre-pay customers means it has largely missed out on the more valuable contract customers, who tend to pay more each month. The pre-pay area is also open to a number of new entrants, increasing the threat of competition.

Proceeds from the float will be used by Virgin to build up a budget airline in the US next year. No new capital is being raised from thefloat, but the company has separately raised £330m of debt. Of this, £190m has gone back to the group.

Mr Branson has not listed a business from his empire for nearly 20 years. After floating Virgin Group in 1986, he bought it back two years later when its price had halved.