Wednesday, 2 April 2008

Virgin to expand to Middle East

Virgin is looking to expand to the Middle East as it held informal talks with Dubai International Capital (DIC) about securing investment backing from the $12 billion (£6 billion) sovereign wealth fund. It is understood that financial support could come from a sale in a stake of Virgin Active which is valued at £1 billion or a joint mobile phone venture. Sir Richard Branson currently owns 75% of Virgin Active.

DIC bought Travelodge, the hotel group, for £675 million two years ago, and also owns Tussauds, the entertainment group. The fund also has large equity stakes in Daimler, Sony, EADS and HSBC and became one of Virgin's backers in the failed bid for Northern Rock.Virgin plans to expand aggressively some of its largest businesses, such as its airline, mobile phones and gyms. It wants partners to help to fund that growth, particularly in new markets such as India, East Asia and the Middle East. Virgin Active is also looking at expansions plans to countries such as Italy, Portugal and South Africa.

Virgin could sell a stake in the Active division to DIC or to another sovereign wealth fund if it determines that the financial markets, still coping with the waves of the credit crunch that began in the United States, are too turbulent for an IPO. Sir Richard Branson does not have a good track record with the stock market and would therefore firstly consider a private venture.

Middle Eastern wealth funds could also be interested in Virgin's plans to establish its pay-as-you-go mobile phone model in the region. Virgin is understood to be bidding already for spectrum licenses in the Middle East.

Sir Richard Branson has handed day-to-day control of the Virgin empire, which has total revenues of about £10 billion a year, to an investment team. Their strategy is to operate as “branded venture capitalists”. This involves investing in a sector such as health clubs, rebranding the business with the famous Virgin name and then seeking other investors to help to develop the asset. (source: Timesonline)

The credit crunch and the pressure of the sub-prime mortgages has shown its strain as Marcel Ospel, UBS’s chairman, once fĂȘted as the most brilliant banker in Europe, said that he was quitting. This is after he revealed that losses had more than doubled to $37 billion (£18.6 billion). This is equivalent to three times the annual wages bill of UBS’s 80,000 staff worldwide and much larger than the next most exposed banks so far, Merrill Lynch, with $24 billion (£12 billion), and Citigroup, with $18 billion (£9 billion).

UBS has been forced into a second emergency capital-raising to shore up its balance sheet, announcing a fully underwritten SwFr15 billion (£7.5 billion) rights issue. Shares on both sides of the Atlantic soared as investors welcomed the UBS move to address its sub-prime issues, and Lehman Brothers successfully raising $4 billion cash. The FTSE 100 closed up nearly 3 per cent at 5,852.6, while the Dow soared 391.5 points to close at 12,654.4.

Jerker Johansson, the newly appointed chief executive of the investment bank, who took up his job on March 17, is understood to be sifting the options. His background is in equities. Peter Kurer, UBS’s in-house general counsel, was named successor to Mr Ospel, who will step down at the annual meeting this month. UBS shares rose more than 12% on hopes that the bank could draw a line under its ill-fated foray into American sub-prime.

In the wake of UBS’s announcement, Gordon Brown called for better daily cooperation between the world’s financial regulators and better disclosure from banks to give early warning of market turbulence. Mr Brown said that he will use talks with international leaders before next week’s G7 meeting to call on financial institutions to make prompt and full disclosure of losses. Possible remedies to deal with the crisis include a temporary suspension of capital requirements, taxpayer-funded recapitalisation of banks and public purchase of mortgage-backed securities (source: BBC News, Timesonline & Reuters)

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