Sir Richard Branson waived over £100 million he was due to receive from Nationwide Building Society in exchange for the use of Virgin Money as part of its £2.9 billion acquisition.
Virgin is a billionaire entrepreneur who has a reputation for licensing companies to use its name in varying industries. This includes airlines, gyms, hotels and other businesses.
He’s already received a “exit fee”, which is worth £250 million, to allow Nationwide discontinue Virgin Brand six year after the completion of the deal. Branson was reportedly due a much larger payout, covering royalties up to 40-years.
The amount of the payout was not disclosed publicly, but is believed to be around £100 million if the complex formula outlined in a 2018 “brand license agreement” had been followed.
Branson’s choice to forgo extra money could fuel speculation that Nationwide negotiated hard during negotiations. Branson will not go unrewarded. He is expected to receive about £700m from the FTSE 250 Bank being taken off of the stock exchange. This includes the £250m exit fee plus £60m over the next 4 years to allow Nationwide to continue using the brand until it is phased-out, as well as £400m for his 14.5% stake in the bank.
Virgin Money as it is today was born in 2018, when CYBG, the Clydesdale and Yorkshire Banking Group (), acquired Virgin Money and adopted its brand.
Branson’s ability to protect his Virgin brand, which was created in the 1970s, and grant licences via Virgin Enterprises is widely praised. The group makes licensing agreements with companies who use the Virgin brand, even though Branson’s group doesn’t own a majority stake in that business.
Some City officials believed that the agreement for Virgin Money to be used as a brand name would deter bidders. This is best estimated in the prospectus that was issued by CYBG when Virgin Money was purchased.
Legal agreements that are carefully drafted can make it difficult for businesses to get out of long-term contracts.
Branson’s empire of businesses has been tested in court before. Recent example of this was the branding agreement between Virgin and Brightline. The Florida-based train company would be carrying the British businessman’s livery. The exit fee was up to 200 million pounds (£160 million).
Brightline, which is backed by the American private equity fund Fortress cancelled the Virgin branding agreement just 18 months after the deal was signed. Brightline claimed that the brand had been negatively impacted by the claims made by Virgin Atlantic, who said they would need a bailout by the British government in the event of a pandemic. Virgin was awarded $115 million by a UK judge in October last year. A second part of the case, worth $90 million, will be heard later.
Royalty payments can be much more profitable than investments. Branson’s companies, for example, charged Virgin Australia A$103.1 in licensing fees during the decade following its 2003 float — this was more than Virgin Australia’s total profits in that period. At the time, the boss of the airline claimed that the company was able to benefit from the “halo effects of Virgin worldwide” which money cannot buy.
Virgin Group and Nationwide declined comment.