Richard Branson’s Virgin Group and Bain Capital are at loggerheads over how much of a stake in Virgin Australia the private equity firm is willing to give the airline’s British billionaire co-founder.
The disagreement over the airline’s equity make-up came as the Queensland government said on Monday it was close to finalising its own minority investment of about 2 per cent in Virgin.
The Virgin Group owned just under 10 per cent of the ASX-listed Virgin Australia before it went into administration in April and has said it wanted to maintain a similar stake under any new owners.
But Bain, which won a fierce bidding war for the airline in June, has offered Virgin Group only a 5 per cent stake, according to a source with knowledge of the deal.
The Australian Financial Review first reported on Monday that Virgin Group was set to emerge with 5 per cent of the company. The Age and Sydney Morning Herald has confirmed that while Bain has offered Virgin Group 5 per cent, Mr Branson’s investment vehicle is pushing for a more significant stake and has offered up to $100 million to retain a tenth of the airline.
The Virgin Group has the leverage of the iconic Virgin brand, for which Virgin Australia was paying it an annual licence fee of about $15 million. Bain is also negotiating a new licensing agreement, without which it will face the significant cost of rebranding the carrier.
Sources said negotiations were expected to wrap up by the end of October, when Bain formally takes on ownership of Virgin Australia. Bain appeared reluctant to hand over more equity in the airline than absolutely necessary, one source said, which was complicated by the Queensland government taking a small stake as part of $200 million in investments and financial support to keep the airline based in Brisbane.
Queensland Treasurer Cameron Dick said on Monday that the state-owned Queensland Investment Corporation would sign a 10-year deal with Bain on Tuesday, before the government enters caretaker mode ahead of the state election on October 31.
“I can also announce today that the return to the Queensland taxpayer on that investment will be about 7 per cent over the duration of that agreement,” Mr Dick said.
The $200 million investment will include working capital, financial incentives and subsidies and an equity investment of around $20 million, which would give it about 2 per cent of the company.
The Liberal National Party has promised to take the money back if it wins the election, but not if a deal has already been signed.
Like Qantas, Virgin remains largely grounded, however, there are slow signs of a domestic recovery with borders opening between some states and territories that have COVID-19 under control.
Source: Thanks smh.com