Virgin Mobile, the UK cell phone company launched by entrepreneur Sir Richard Branson, made its stock market debut on Wednesday July 21st, raising an estimated 125 million pounds (US$231 million) for the company.
Britain’s fifth largest cell phone company, Virgin Mobile set an IPO price of 200 UK pence ($3.70) for its equities on the London Stock Exchange, which valued the company at around 500 million pounds ($925 million). During trading on July 21st, the shares rose to 203 pence ($3.75).

J. P. Morgan Chase and Morgan Stanley acted as managers for the IPO.

Lower Value

Because of tough market conditions, Virgin Mobile, which only has operations in Britain, had to cut its IPO price. It had originally hoped to set an indicative price range for the stock of 235 to 285 pence ($4.34-$5.27), which would have raised between 588 million pounds ($1.08 billion) and 713 million pounds ($1.31 billion). But investors baulked at paying this price, forcing Virgin Mobile to set an IPO price of 200 pence.

The shares in Virgin Mobile were sold by the company’s majority owner, Sir Richard Branson’s Virgin Group, which says it plans to use the proceeds from the IPO to fund investment opportunities in its global operations. The group of businesses includes airlines, credit cards, music stores and cell phone companies in Australia, the U.S. and Canada.

In total, Virgin Group sold 62.5 million Virgin Mobile shares, representing 25 percent of its holdings in the company. However, Virgin Group says it could sell an additional 6.25 million shares in Virgin Mobile if there is the demand from investors. Selling the extra shares would take Virgin Group’s total disposal of Virgin Mobile stock to 27.5 percent of its total holding.

Price War

A key factor that affected Virgin Mobile’s IPO stock price was investor concern about a cell phone airtime price war in the UK. Virgin Mobile is entirely UK-based and, unlike rivals such as Vodafone and Mm02, does not own a network, as it leases capacity from cell phone operator T-Mobile . So a price war could be very damaging to Virgin Mobile’s profit margins. Analysts do not think that Virgin Mobile would be able to get better terms from T-Mobile, should it have to cut its airtime prices.

But Virgin Mobile says that acting as a «virtual mobile network operator,» with its traffic being carried over T-Mobile’s network, allows it to maximize its main strengths -- branding, marketing and customer service -- without having to invest in building its own network.

At the end of May, Virgin Mobile, which was launched in November 1999, had 4.1 million customers. Around 95 percent of its customers buy their airtime on a pay-as-you-go basis, using pre-pay phone cards. In the UK, pre-pay has replaced monthly subscriptions as the most popular way of paying for airtime, as it reduces the customer’s financial commitment.