Private investors barred from Virgin Money flotation
After months of speculation, Richard Branson's Virgin Money has finally confirmed it will float on the London Stock Exchange this month in a listing expected to value the bank at about £2 billion. Retail investors, however, have been excluded from the IPO and will have to wait until trading begins to get involved.
The bank expects to raise gross proceeds of £150 million, and will spend what's left after some hefty advisory fees on growing the business. It will also beef up its equity tier 1 capital ratios, be better able to hire and retain key staff, and give access to other fundraising options.
Of course, Virgin Money also owes the Treasury £50 million, a condition included as part of Virgin's acquisition of Northern Rock in late 2011. It agreed to pay the money in the event of a successful IPO before the end of 2016. The extra cash will take the total paid by Virgin for Northern Rock to £1.02 billion.
Branson's Virgin Financial Investments, funds managed by American investor Wilbur Ross, and a selection of small shareholders and staff will all sell down their stakes. Virgin employees will benefit, too - each will receive £1,000 of Virgin Money shares.
And while retail investors will not take part in the IPO, those who buy and hold after the float can at least look forward to a dividend in Virgin's first full financial year, promised to be 10-20% of after-tax profits.
The business has certainly done well this year. In the first half of 2014, Virgin Money made an underlying profit of £59.7 million compared with £53.4 million in the whole of 2013.
"Over the last three years we have transformed our business," said chief executive Jayne-Anne Gadhia. "We have expanded our product range, increased our customer numbers, grown our balance sheet and enhanced our profitability. Our decision to take the business public marks just how far the company has come."
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The article was written for our sister website Interactive Investor
An Initial Public Offering is the US equivalent of flotation, and is the first sale of equity in a private company in the form of shares (know as stocks in the US) to the public in order to raise capital to finance growth.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.