Sir Richard Branson has agreed that his Virgin Group will see its holding diluted to a secondary position when Virgin Blue launches its initial public offering (IPO) in Australia.
Branson's concession comes as part of a settlement on a number of ownership issues with Virgin Blue's other major shareholder, the Australian transport group Patrick Corporation.
Initially, Branson had wanted the Virgin Blue IPO to include a new share issue, plus some of the shares owned by Virgin and Patrick, leaving the partners still equal. Currently each owns half of the discount carrier. Patrick agreed to put up 5% of its shares, as required by its initial purchase agreement, but resisted any new issue on the grounds that this would dilute its stake. An arbitrator agreed.
This prompted the two shareholders to enter talks that clear the way for the proposed IPO and resolve other issues. First, Patrick has agreed to pay the Virgin Group A$240 million ($165 million) to settle its liability under the initial purchase agreement, which requires it to pay additional amounts based on Virgin Blue's increased value. Analysts estimate that Patrick's liability under this escalation clause could have reached A$460 million, depending on share values at the time of the float.
Second, while Patrick need no longer offer any shares to the IPO, it has agreed that Virgin Blue may issue and sell A$400 million in new shares as part of the IPO, and the Virgin Group can set the timing of the offering.
But the key accord is that Patrick will be able to buy enough shares from the IPO to maintain its stake at 45%, while Branson's will fall to 30%. Thus, Patrick will become the dominant owner. It is widely reported that Branson plans to use the escalation clause payout and his share of IPO proceeds to fund a discount carrier in the USA.
As Virgin Blue's ownership issues are resolved, the carrier is planning to begin flights to New Zealand under the Pacific Blue Airlines brand. The Christchurch-Brisbane flights will start in February
DAVID KNIBB / SEATTLE
Source: Airline Business
