British entrepreneur Richard Branson stands to receive a substantial windfall following a proposed takeover bid for Virgin Money, a struggling challenger bank in the U.K. The bank, in which Branson holds a significant 14.5% stake, attracted a takeover offer from banking giant Nationwide for a staggering £2.9 billion, causing a surge in its share price.
Virgin Money has indicated its inclination to recommend the potential offer to its shareholders, noting that it represents a substantial premium on the bank’s current valuation. If the deal proceeds as planned, Branson stands to reap a handsome reward of at least £420 million ($539 million) from the sale of his stake in the bank.
However, the potential windfall for Branson could extend beyond this initial sum. If Nationwide opts to discontinue the use of the Virgin Money brand following the acquisition, Branson could potentially benefit from an additional payout under a lesser-known brand licensing agreement.
This agreement, which likely includes provisions for royalties or compensation in the event of a rebranding or discontinuation of the Virgin Money name, could result in Branson receiving a further substantial payout. While the exact terms of this agreement remain undisclosed, it underscores the potential for Branson to secure an even more significant reward from the takeover deal.
Overall, the proposed takeover bid for Virgin Money presents Branson with the opportunity to realize a considerable financial gain, both from the sale of his stake in the bank and potentially from additional compensation related to the branding transition. As the deal progresses, investors and industry observers will undoubtedly be closely monitoring Branson’s windfall and its implications for the future of Virgin Money and its brand identity.
Branson branding bonus
Under the proposed terms of the takeover bid for Virgin Money by Nationwide, the plan includes rebranding and eventually phasing out the Virgin Money name four years post-acquisition. This strategic move could potentially lead to an additional windfall for Richard Branson, estimated at £250 million ($321 million), referred to as an “exit fee” in calculations by The Times of London. With this additional sum, Branson’s total compensation from the deal would surge to approximately £670 million ($860 million).
Branson’s licensing agreement with Virgin Money falls under his broader Virgin Enterprises brand, which encompasses a diverse range of industries spanning music, fitness, and aerospace. According to estimations by The Times, Branson could potentially receive annual payments of £60 million during the period Nationwide continues to utilize the Virgin Money name, in addition to the projected £250 million exit fee. However, it’s important to note that these figures are speculative and subject to finalization pending a financial agreement between the involved parties.
Both Virgin Group and Nationwide declined to provide comments on these calculations.
Branson’s track record with branding agreements under the Virgin empire has previously proven lucrative. In a notable instance, Virgin Group secured a $160 million victory in a legal dispute with Alaska Airlines in February of the preceding year. Despite Alaska Airlines ceasing to use the Virgin brand years earlier following its acquisition of Virgin America Inc. in 2016, a licensing fee was still owed to Virgin Group as per the existing agreement. A court ruling mandated Alaska Airlines to pay a minimum royalty fee of $8 million annually until 2039, highlighting the enduring financial benefits of Branson’s branding agreements.
Branson’s banking ambitions come to an end
Richard Branson, renowned for his initial success in the media industry, ventured into banking nearly three decades ago with the establishment of Virgin Money in 1995. However, it wasn’t until his acquisition of the nationalized bank Northern Rock in 2011 for £747 million ($1.18 billion) that Branson could claim ownership of a significant challenger to established banks.
The acquisition of Northern Rock provided Branson with a platform to challenge traditional financial institutions. Subsequently, the Virgin Money group was acquired by Clydesdale and Yorkshire Banking Group (CYBG) in 2018 for £1.7 billion ($2.68 billion). As part of this deal, CYBG continued to pay royalties to Virgin and Branson to retain the rights to the Virgin Money brand.
Despite these strategic moves, Virgin Money faced challenges in establishing itself as a formidable competitor to the UK’s incumbent banks, including its prospective acquirer, Nationwide. Since the acquisition by CYBG in 2018, shares in Virgin Money have displayed limited growth, indicating the bank’s struggles to gain momentum in the highly competitive financial landscape.
Furthermore, Virgin Money encountered setbacks in meeting profit expectations, particularly evident in its performance last year. The bank’s profits were impacted by an increase in provisions for bad loans, attributed to the surge in credit card arrears amid a broader economic downturn, colloquially referred to as the cost of living crisis. This challenging operating environment further underscored the hurdles faced by Virgin Money in its quest to challenge established players in the banking sector.