As the world recovered from the October shock, I expected the share price to jump back after we announced our results, more than doubling profits from ?14 million to ?32 million for the year ending July 1987. But the price of our shares had fallen along with everybody else’s, from our flotation price of 140p to just over 70p. Double your profits, halve your share value: this was barmy logic. In July 1988 we told the market that we were conducting a management buyout — and at the original price of 140p per share. I didn’t want to let down the army of smaller investors — including many close friends — who had put their savings and faith in our business. We took out a ?300 million loan to do this, which meant that our gearing was very high. My dream of taking over EMI Music came to an end there and then. The City of London had misunderstood our business — we would now go off and become one of the largest groups of private companies in the world with several quoted investments to boot.
In 2004, I hoped that the flotation of Virgin Mobile in the UK would enhance our already considerable rehabilitation in the eyes of the City.
From early on there had been speculation in the business press that we would float, with the
Ironically, we were due to float in the same week as Premier Foods, the makers of Branston Pickle, which gave the newspapers a chance to dust down their ‘BRANSON PICKLE’ headlines.
How would investors view the return of a major Branson business in July 2004? This time round, the circumstances were entirely different. I had learned a great deal about business in the intervening years, and I knew that, while my bearded and smiling face was used in the newspapers, I choose not to be a board director of any of our public companies, and therefore would not be in direct control. Corporate governance was a whole new ball game in 2004, and from day one, Virgin Mobile was set up and acted like a plc-in-waiting.
A highly experienced team of corporate business figures was brought in to help Tom Alexander so there would be no replay of the 1980s. Charles Gurassa, chairman of TUI Northern Europe, and prior to that chief executive of Thomson Travel, joined as chairman, and Caroline Marland, a non-executive director of Burberry and Bank of Ireland, Rupert Gavin, well known for his work as head of BBC Worldwide, and David Maloney, chief financial officer of Le Meridien Hotels, all joined the board as non-executive directors. These were heavyweight players who would steer the team as they joined the FTSE 250 index.
Tom Alexander and his team, aided by the non-executive board, had experience and pedigree. They required my backing only as a significant investor, and, of course, for the Virgin brand; so they let me be honorary president!
Our financial numbers were very good, and Virgin Mobile had been run scrupulously for the market. I knew that the 1987 experience might put off one or two investors. Well, so be it: there was no one forcing people to invest if they didn’t like us.
On 30 June 2004, Virgin Mobile announced its intention of seeking a full listing of its shares and all Virgin Mobile employees who had worked for the company for more than a year received a gift of free shares. JP Morgan and Morgan Stanley acted as book-runners and sponsors and with Investec Securities they also acted as underwriters.
On 7 July 2004, we said that the indicative price per share would be between 235p to 285p, making the business worth over ?1 billion at the top end of the valuation. Not a bad return, I thought; perhaps we were being too optimistic. As the market worsened, we had to temper our expectations, and on 21 July Virgin Mobile announced an offer price of 200p per share, valuing the business at ?811 million, with proceeds of ?125 million and share capital of ?500 million.
I could hardly complain, particularly given the difficult markets which had seen several other IPOs abandoned during the year. The Virgin Group made around ?400 million from Virgin Mobile being floated on the London Stock Exchange, and has invested this money in new Virgin ventures in the United States, China and Africa. Memories of 1987 and the ‘Branson Factor’ never became a serious issue — and Virgin Mobile has continued to grow.
When life isn’t going well, it’s very hard for a company to stay flexible enough to meet the challenge. Virgin Mobile USA has been trading punches in a fierce market since the beginning. It has pretty much done everything right — and it’s still by no means out of the woods.
What delights me is the way the company has continued to innovate its way out of trouble. A defensive, conservative, cautious mindset — a natural enough reaction when things get tough — can kill you stone dead in a competitive marketplace.
We’d had a brilliant start in 2002 and were kicking ass. Virgin Mobile USA was giving young Americans the features they wanted, while offering a straightforward price plan with no contracts to sign and no fine print. But by 2005, the prepaid mobile phone market was a dogfight. After four years, Dan Schulman and his team were finding conditions tough. Bigger competitors — with deeper pockets — started to squeeze Virgin Mobile USA, targeting the prepaid customer.
Dan responded with great products. Our Flasher V7 flip phone had a flash camera, two-way picture messaging, ‘superphonic’ ringtones, downloadable games and custom graphics, and it was Virgin Mobile’s first handset to plug into our new higher speed network. The price was great, too. And somehow it still wasn’t enough. It was costing us more and more money to win market share.
The American team had taken out a large loan to make an impact in this vast territory, and it looked at one stage that defaulting might be a real possibility. To add to their woes, they had supply problems, and pending legal action with Virgin’s major handset supplier, Nokia. I heard from Dan that employee morale was draining away, as our planned IPO was pushed further and further into the future. Bonuses were slashed and the very viability of the company was in question. Shareholders were concerned. One thing was for sure: our current strategy wasn’t sustainable.
Dan spent a weekend alone and came up with his new manifesto, Virgin Mobile Rising. It was his clarion call to the company and to himself to regain the leading position and focus on a set of radical actions. Keep four million customers sweet. Resolve the debt and morale issues. Sort out legal matters with Nokia, Freedom and Telcordia. Relaunch the business. All within six months.
It was outrageous. It was gutsy. I loved it — and so did his team.
In 2006 Virgin Mobile USA overhauled itself. The brand underwent a complete revamp, as did the handsets, as did the distribution network. New services like Sugar Mama (a way to earn extra minutes), Stash (a prepay debit card) and ReGeneration (a charity network to assist homeless young people) built on emerging youth trends. By the end of July business was improving dramatically. Even against Cingular, who also had low-price handsets, Virgin was able to grow its market share. The customer base rose to 4.6 million, an increase of 20 per cent, and revenues went from negative to positive. Virgin customers sent or received 1.5 billion text messages, one from every customer every single day of the year. In addition, they downloaded 15 million ringtones and 2.5 million games. By December 2006, Virgin Mobile USA customers were using 950 million minutes of mobile phone time. That’s a lot of chat.
We got ready for our trip to Wall Street. On 11 October 2007, Virgin Mobile USA announced its initial public offering, selling 27,500,000 shares of Virgin Mobile USA, at $15 a share.
No one ever said business was going to be easy, though — 2007 was Virgin Mobile USA’s first year of profitability, with a net income of $4.2 million. But five months after the flotation, things were not looking so good. The US stock market was going into a tailspin caused by the sub-prime mortgage crisis and the collapse of Bear Stearns bank. Recession loomed. The share price was hit by a general downturn in the market and increased competition. Some analysts were beginning to question the MVNO model — and our stock price hit $2 a share. This was a disappointment to all of our investors. But I was convinced it would bounce back.
Dan, too, was upbeat and clear about Virgin Mobile’s future prospects. ‘We think we have one of the most attractive value propositions in the market, and that our business is well positioned for the future,’ he told investors. I agree. Throughout its five-year operating history, Virgin Mobile USA has driven industry innovation and I believe that if it keeps its nerve, and continues to simplify and evolve its products and services, it will generate increasing demand.
For all its troubles — or perhaps because of them — I am incredibly proud of Virgin Mobile USA. The company
