InvestmentsOct 2 2014

Virgin Money announces £150m IPO

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Virgin Money Holdings has today (2 October) announced its intention to proceed with an initial public offering, with the offer of new ordinary shares expected to raise gross proceeds of approximately £150m, resulting in a free float of at least 25 per cent.

The offer comprises a sale by Virgin Financial Investments Limited, funds managed by WL Ross and Co, other minority shareholders, members of the senior management team and other employees selling of a portion of their existing ordinary share holdings, in addition to an offer of new ordinary shares to be issued by the company.

Ordinary shares will be offered to certain institutional investors in the United Kingdom and elsewhere outside the United States. As such, private UK investors won’t be able to participate in this issue at launch.

Completion of the offer will lead to a final payment of £50m being made to HM Treasury in respect of the contingent consideration payable as part of Virgin Money’s acquisition of Northern Rock plc.

When the company agreed to buy Northern Rock in late 2011, it was agreed that this payment would be made in the event of a successful IPO of the combined businesses before the end of 2016. This payment will take the total paid to the Treasury to £1.02bn.

It is expected that admission will take place during October.

The company intends to pay a dividend in its first full financial year following admission, with the board targeting an initial payout ratio of 10-20 per cent of statutory profit after tax less any coupons paid on any additional tier 1 securities in issue.

Its objective is to support dividend distributions in line with the larger, listed UK banks once the business has grown its earnings base and balance sheet.

Jayne-Anne Gadhia, chief executive of Virgin Money, stated that the decision to take the business public marks how far the company has come.

“Our capability to deliver growth at meaningful scale, the quality of our balance sheet and our absence of legacy issues makes us stand apart from other banks, and these strengths give us the potential to deliver ongoing returns to our shareholders through both capital growth and progressive dividend payments.

“In addition, and in recognition of their hard work to-date and their contribution to the future value of the business, I am also delighted to announce that each employee will be awarded £1,000 worth of shares in the business upon flotation.”

Richard Hunter, head of equities at Hargreaves Lansdown, added: “It is disappointing that Virgin have chosen to exclude private investors, particularly given the ubiquity of its brand and the nature of its business.

“Nonetheless, it is an uncomfortable truth that, given the relatively small amount being raised, in terms of convenience and speed to market this may be the prudent financial choice for Virgin Money.”