Offer values Virgin Blue at $1.6bn
CNN's Geoff Hiscock, Asia Business Editor
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Branson launched Virgin Blue in Australia in September 2000.
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SYDNEY, Australia (CNN) -- Pricing of the high-profile share offer for Richard Branson's discount carrier Virgin Blue values the carrier at up to Aust. $2.3 billion ($1.6 billion).
The airline's part-owner, Australian transport and logistics group Patrick Corp., lodged a prospectus with the Australian Stock Exchange (ASX) Monday that puts the offer's indicative price range at A$1.80 to A$2.25 a share.
That equates to a value of A$1.9 billion to A$2.3 billion for the carrier, which will list on the ASX on Monday, December 8.
The offer aims to raise A$400 million ($280 million) in fresh capital and more than A$100 million from the sale of part of the 46 percent stake now held by Branson's Virgin Group.
Branson told a press conference in Brisbane Monday that after dilution, the company would hold about 30 percent. He said the plan was to keep that stake for the long term.
A small group of Virgin Blue exectives led by CEO Brett Godfrey now hold 4 percent, reducing to 3.2 percent after dilution. Godfrey plans to hold onto his stake, according to Branson.
Patrick Corp., which now owns 50 percent of the airline, will pay about A$127 million to A$137 million to maintain a 45 percent stake. It will receive $45 million ahead of that via a distribution to Virgin Blue's existing shareholders.
Branson said he would remain by far the largest private shareholder, but it was appropriate that Patrick chief Chris Corrigan should be the airline's non-executive chairman. While Branson will not be on the board, he has been named "Life President" of Virgin Blue.
Godfrey said Virgin Blue would have 44 aircraft by the end of March next year, compared with 40 aircraft now. He said the airline had 28 percent of the total Australian domestic market, and 32 percent of those routes on which it operates.
Virgin Blue is forecasting net profit after tax of about A$150 million for the year to March 2004.
Qantas, the airline which dominates the Australian market with a 70 percent share, made a profit of A$343.5 million for the year to June 2003 after the SARS outbreak and the war in Iraq cut into its second half earnings. (Full story)
Qantas CEO Geoff Dixon told CNN 10 days ago that plans to launch its own low-cost airline to target the Australian leisure market next year were on track.
Dixon said the new carrier would help grow the lost-cost leisure segment of the Australian market and would enable Qantas to compete effectively with Virgin Blue, which dominates the cheap end of the market.
Virgin Blue entered the Australian scene as a discount carrier in September 2000. It became the No. 2 airline after the collapse in late 2001 of Ansett Airlines, the Australian domestic subsidiary of Air New Zealand.
It plans to start flying between Australia and New Zealand from February, challenging Qantas and Air New Zealand on the trans-Tasman route with its Pacific Blue spin-off carrier.
Patrick paid A$260 million (then worth about $135 million) for 50 percent of Virgin Blue in March last year. In September Patrick agreed to pay another A$240 million to Virgin Group under a revised shareholders agreement that relieved Patrick of any further payment obligations.
For Branson, the sale of a half share to Patrick for A$500 million from an initial investment in Virgin Blue of about A$11 million is an extraordinary return over a three-year period, plus his Virgin Group will have a 30 percent stake in the airline worth up to another A$700 million.
But after the float, Corrigan will have effective control through Patrick's 45 percent majority stake. Shares in Patrick are 0.47 percent lower at A$14.90 near the close.
The Sydney-based Center for Asia Pacific Aviation said after the pricing announcement that Virgin Blue's low-cost formula "works perfectly" for the Australian market, which is essentially point-to-point.
The Centre said that by mid-2004 it expected most national airlines in Southeast Asia will be operating a low-cost subsidiary.
That supports an assertion by Godfrey earlier in the day that low-cost carriers are "the new way of the world" and that within five years few flag carriers would be dominant in their domestic markets.
