Big investors scramble for Virgin Blue

MAJOR investors have flocked to the flotation of Sir Richard Branson's budget airline Virgin Blue, forcing the company to cut the number of shares it can allocate to big firms.

Book-building among institutional investors closed 10 times oversubscribed today. Float managers Credit Suisse First Boston and Goldman Sachs JB Were received so many orders from fund managers that they could have filled the entire share allocation.

The final price was set at A$2.25 a share, at the top end of the price range, valuing the company at A$2.3bn (£983m). The offer to institutions and last week's retail offer will raise A$666m.

'We have decided not to price the offering any higher to hopefully allow for a decent aftermarket for the many staff and supporters of Virgin Blue,' Branson said.

Virgin Blue will be forced to scale back applications this weekend in order to achieve a final split between retail and institutional investors of about 40-60. It could increase the retail portion, but is unlikely to go up to 50%.

The company wants to attract small investors in the hope that they will be loyal and fly with the airline.

Virgin Blue will make its stock market debut at midday on Monday in Sydney. Branson, who is in Australia where he plans to holiday with his family over Christmas, will be present when Virgin Blue lists.

At $2.25 a share, Branson would reduce his stake from 46% to 25.1%, rather than the minimum amount of 29.1% he initially indicated. That would net Branson an extra A$96m, on top of the $360m windfall he will already collect from the float.

Such a move would mean about 30% of the three-year-old carrier will end up in public hands. Patrick Corp, Branson's partner in the airline, is spending about A$130m to ensure its stake remains steady at about 45%.

Another big winner is Virgin Enterprises which is set to pocket millions in royalty payments over the next 12 years for allowing the airline to use the Virgin trademark.

Virgin Blue, which predicts it will make a A$150m profit this year, will rank among Australia's top 70 companies. It will compete head-on with Qantas, which has revealed plans for its own cut-price domestic carrier, Jetstar. Qantas is entering the low-cost market to try to claw back customers from Virgin Blue, which now has a 30% share of the domestic market.

Virgin is the latest in a rush of companies looking to tap cashed up investors who had been on the sidelines of the share market until the Iraq war ended.

Pub chat delivers £30m payday

NOT many people come out of the pub with a £30m idea - but Brett Godfrey, chief executive of Virgin Blue, did. Sydney-born Godfrey came up with the plan for the discount Aussie carrier in a London pub during the 1993 Ashes series.

Then a junior accountant with Virgin Atlantic, he did rough calculations on the back of beer mats. 'We had a few beers and as the night wore on I got bolder and bolder,' Godfrey says. The idea was knocked back by Virgin Atlantic and the banks, but six years later Godfrey, then Virgin Express chief financial officer, was asked by Branson if he had any investment ideas for Australia. 'My exact words were, ''Funny you should say that'',' Godfrey says.

If Virgin Blue lists as expected, at about A$2 a share, Godfrey's paper profit will be about A$78m (£33.3m).