Sir Richard Branson’s unlisted Virgin Group yesterday sealed a A150m (£92m) deal to sell its 16 French Megastores and some international rights to the Virgin retail brand to Lagardère Media, the French publishing, distribution and Media Company.

Sir Richard told a joint news conference at the flagship store on the Champs-Elysées in Paris that the cash raised would be spent on Virgin ventures around the world, including the Virgin Mobile telephone business.

‘Music-retailing has not been flavour of the month around the world. We believe that we can make more money out of putting [the cash] into mobile phones and one or two other industries.’

The disposal follows Virgin’s sale this month of its stake in Virgin One, the mortgage company, to Royal Bank of Scotland. The group has also recently increased its loan facility with Lloyds TSB.

Lagardère has acquired, in addition to the stores, the right to use the Virgin name brand for shops in francophone Europe, Spain and Portugal, an option to use it across the rest of continental Europe, and the right to the Megastore name in international airports and other transport hubs.

Lagardère’s Hachette Distribution Services (HDS) arm will continue with the planned opening of six Virgin stores in France over the next 18 months and rebrand its Extrapolestores as Virgin.

Yesterday’s deal, it says, will give it a ‘trampoline’ to develop its retail business and challenge Fnac, the music, book and electronic goods shops controlled by Pinault-Printemps-Redoute (PPR).

PPR executives, however, see yesterday’s deal as another retreat by Virgin in the face of competition from Fnac in Europe. They said the combined Virgin Megastore–Extrapoleturnover in France was less than a sixth of Fnac’s.

HDS will initially have 37 music and bookstores in France, against Fnac’s 58. There was confusion over the value of the deal.

Lagardère executives said the total, including the present value of likely future royalties for use of the Virgin name, was below A150m, with the immediate cash payment amounting to considerably less.

Sir Richard, however, said the deal was worth £103m, of which Virgin would receive £93m in cash because Lagardèrewas taking on £10m in debt with its purchase of the Virgin Megastores.

Lagardère will offer Virgin Mobile products, although not exclusively, through its worldwide retail network.

Source: Victor Mallet, ‘Branson sells French Megastores’, Financial Times, 27 July 2001, p. 19.

Presentation Questions

1. What competitive pressures account for Virgin’s retreat from the French market? If Virgin’s

French Megastores are no good to the parent company, why are the same stores of value to Lagardère Media?

2. Sir Richard says he is disinvesting not because of the current competition in the French market but because of competitive turbulence surrounding music and the Internet. Assess the level of turbulence in the markets.