Branson weighs $1.2bn bid for American gyms chain

Virgin Active, the fitness clubs arm of Sir Richard Branson's business empire, is considering a $1.2bn (£690m) bid for the biggest chain of gyms in the US.

Sir Richard is set to ask for financial information on Bally Total Fitness, which runs 400 clubs across the country. The troubled company put itself up for sale in December after pressure from rebel shareholders.

The deal would be a bold move for Virgin Active and would quadruple its size. Virgin has 115 family-focused clubs in South Africa and Europe, including 25 in the UK. One insider said: "Virgin Active is a good business model in search of opportunity." Sources at Bally said the sale process is still at an early stage. The company appointed JP Morgan to recommend whether all or part of the business should be sold, and bankers have been contacting potential bidders.

Virgin is likely to face competition for control of Bally from private-equity buyers, other health club chains and from property investors. The first round of bids is due early next month.

Virgin Active is wholly owned by Sir Richard's Virgin Group, after it bought back Bridgepoint Capital's 55 per cent stake for £135m last year. The pair had disagreed over how soon Virgin Active should be floated: Bridgepoint wanted a quick sale, while Virgin wanted first to bulk up the business with some big overseas acquisitions. A float is now slated for next year.

Bally is a rare nationwide player in a gym market that is regionalised and fragmented. But it lost $30m in 2004 and is yet to report on 2005 because of accounting problems. It has been struggling to find the cash for a facelift of its clubs, which are pitched for the mid-market, and has debts of about $760m compared with an equity value of $300m.

The company's biggest shareholders are activist hedge funds which have been agitating for a shake-up and came close to ousting the company's chief executive earlier this year.