Bain Capital to buy Virgin Australia after shock Cyrus exit
By Glenda Korporaal
Associate Editor (Business)
Robyn Ironside
Aviation Writer
4 minutes ago June 26, 2020
Virgin Australia has been sold to Boston-based private equity fund Bain Capital, with administrators confirming a “sale and implementation deed” had now been signed.
The announcement came hours after the withdrawal of rival bidder Cyrus Capital who said they had decided to pull out “due to a lack of engagement by the administrator”.
Deloitte’s Vaughan Strawbridge who was appointed as administrator to Virgin Australia on April 21 provided few details of the sale agreement in a statement to the ASX.
He said the transaction supported the current management team led by Paul Scurrah and their improvement plan for the airline, and the retention of thousands of jobs.
The deal also carried forward all travel credits and Velocity frequent flyer booked flights, honoured all employee entitlements and provided a significant injection of capital to see the business recapitalised and well positioned for the future.
“This is an important milestone and a significant achievement,” he said.
“Bain Capital has presented a strong and compelling bid for the business that will secure the future of Australia’s second airline, thousands of employees and their families and ensure Australia continues to enjoy the benefits of a competitive aviation sector.”
Mr Strawbridge said no return to shareholders was expected and it was not possible to determine the estimated return to creditors, who are owed $6.8bn.
He also revealed the final offers received from Bain and Cyrus were not the only ones received, with “several proposals” made including one from representatives of the airline’s 6000-plus bondholders.
Despite the claim by Cyrus Mr Strawbridge had failed to return calls or emails after they made their final offer, he said they had been focused on achieving the best possible outcomes for all stakeholders.
“In just over eight weeks, this is a very positive outcome. We have certainly been heartened by the levels of interest shown by parties, despite the prevailing COVID-induced market conditions, how our final two groups have approached their bids, and how support for the business has come from so many quarters,” he said.
“This result could not have been achieved without the support and hard work of the Virgin Australia team, who we have had the privilege of working with over the last eight to nine weeks. We would also like to thank them for their ongoing support and engagement.”
The Transport Workers Union was looking forward to working with Bain but national secretary Michael Kaine said the process still needed major government involvement.
“The Federal Government must stabilise the aviation industry with Aviation Keeper, an extension of support beyond September for all aviation workers,” Mr Kaine said.
“Both Virgin and Qantas need financial assistance, support and direction from the government on weathering the difficult months ahead as air travel limps along.”
New York hedge fund Cyrus has withdrawn its offer for Virgin Australia, leaving the way open for private equity fund Bain to win the battle.
Cyrus said in a statement on Friday that it had decided to withdraw its offer “due to lack of engagement by the administrator”.
The Australian understands Bain Capital is currently meeting with Deloitte to sign a deal for the airline which is expected to be formally announced within hours.
Unions were awaiting confirmation before commenting on the latest twist in the process.
The angry statement by Cyrus was a slap in the face of the administrator Vaughan Strawbridge, who was accused of “not returning calls, emails or meaningfully engaging with Cyrus to progress its offer”.
The statement referred to the “thousands of hours of detailed due diligence, business planning and stakeholder engagement” that had gone into the offer.
Cyrus said it had increased its offer for Virgin on Thursday morning in a “package of value improvements and other compelling measures to increase the value of the transaction, improve the return to unsecured bondholders and deliver more certainty for the administrators”.
But it complained that “this too had receive no response” except an acknowledgment of its receipt.
Cyrus, which has had a long-time link with Richard Branson, said it was withdrawing its offer as of Friday morning.
The move comes after Qantas has announced on Thursday it would cull the jobs of 6000 of its workers.
The Bain consortium has been advised by former Jetstar chief executive Jayne Hrdlicka raising speculation that she could play a role in a Virgin 2.0
The move will come as a disappointment for Virgin’s unions, two of which have publicly backed the Cyrus bid. But the key Transport Workers Union has kept its powder dry, saying it was prepared to back whichever bidder was chosen by the administrator.
Cyrus founder Stephen Freidheim said in the statement that he was “disappointed” that it had “become necessary to withdraw” the company’s offer.
But he said that Cyrus would be willing to re instate its offer “if the administrator agrees to re-engage in good faith, productive discussions with a view to concluding a transaction that will benefit all key stakeholders – employees, customers, Velocity members and bond holders.
“Cyrus firmly believes that the Australian aviation industry has a bright future and would be willing to reinstate our offer,” he said.
But Mr Strawbridge is under heavy pressure to get the deal done as soon as possible given the cash drain on the airline industry.
Qantas chief executive Alan Joyce said Thursday that his airline had a cash burn of some $40 million a week.
Virgin was placed into administration on April 21 with debts of some $7 billion.
The Cyrus withdrawal will mean that Mr Strawbridge will now put a proposal to creditors at their meeting in mid August which will back the Bain bid.
But the move will be treated with some caution by Virgin’s workers as Cyrus was seen as the bidder which would have been the most sympathetic to its staff.
Statement by Cyrus Capital with respect to Virgin Australia
For Immediate Release
26 June 2020
After thousands of hours of detailed due diligence, business planning and stakeholder engagement from Cyrus and its advisers over the past two months, Cyrus has decided to withdraw its offer to acquire Virgin Australia, due to lack of engagement by the Administrator.
On the morning of 22 June 2020, Cyrus presented to the Administrators of Virgin Australia Holdings an offer to acquire the airline, its regional business and the frequent flyer program Velocity, in accordance with the Administrators’ procedures. However, since then, the Administrators have not returned calls, emails, or meaningfully engaged with Cyrus to progress its offer.
On the morning of 25 June 2020, Cyrus submitted a further unsolicited package of value improvements and other compelling measures to increase the value of the transaction, improve the return to unsecured bondholders and deliver more certainty for the Administrators. This too received no response other than an acknowledgment of receipt.
Despite the material improvements put forward, the Administrators have still not engaged with Cyrus on its offer.
As a result, Cyrus has withdrawn its offer today, 26 June 2020.
The effort and expertise invested by Cyrus and its advisers over a very compressed time period, including the close personal involvement of Cyrus’ Founder and Chief Investment Officer, Stephen Freidheim, demonstrates how committed Cyrus is – and remains – to playing a lead role in the future of Virgin Australia.
Cyrus knows what it takes to grow a successful Virgin airline. With a 20-year history of investing in airlines, and its deep understanding of the Virgin culture from twelve years as the controlling shareholder of award-winning U.S. airline Virgin America, Cyrus firmly believes it is the best-qualified party to take Virgin Australia forward to great success – to the benefit of employees, customers, Velocity frequent flyer members and other stakeholders. These qualifications are bolstered by the involvement of former Virgin Group North America CEO Jonathan Peachey as a Senior Adviser to Cyrus.
Working closely with Virgin Australia’s management and other stakeholders culminated in a strong vision and business plan that was overwhelmingly supported by the unions representing the collective heart and soul of Virgin Australia – its employees.
In fact, every major group with a vested stake in Virgin Australia’s future – employees, their union representatives and Virgin Australia management – support Cyrus due to the shared vision, compatibility of working styles and mutual respect earned during our intensive engagement over the past few weeks. This alignment is so critically important to Virgin Australia’s future success.
Cyrus also believes that its business plan, developed on a bottom-up (plane-by-plane and route-by-route) basis with management, best positions Virgin Australia to return to strength during these difficult times. It has been widely reported that after this plan was unveiled two weeks ago, it has been largely adopted by all other potential bidders as well.
“I am disappointed that it has become necessary to withdraw our offer,” commented Stephen Freidheim, Founder and Chief Investment Officer of Cyrus Capital. “Cyrus firmly believes that the Australian aviation industry has a bright future and would be willing to reinstate our offer if the Administrators agree to re-engage in good faith, productive discussions with a view to concluding a transaction that will benefit all key stakeholders – employees, customers, Velocity members and bondholders.”
“It has been a pleasure to get to know Virgin Australia, its talented and enthusiastic management and its dedicated employee union representatives”, commented Jonathan Peachey, Senior Adviser Cyrus Capital. “Cyrus would have brought to Virgin Australia all its experience of launching and supporting the growth of Virgin America in the United States to reinstate Virgin Australia to its rightful position as the best airline in the region.”
The Australian