I peered over the edge and saw the sea coming up. I shuffled around the capsule trying to work out where the wind was coming from. It was difficult to be sure since it seemed to be gusting from all directions. I finally chose the upwind side and looked down. I was fifty feet away, the height of a house, and the sea was racing up to hit me. I checked my life jacket and held on to the railing. Without my weight, I hoped the balloon would rise up again rather than crashing on top of me. I waited until I was just above the sea before pulling my life-jacket ripcord and hurling myself away from the capsule.
The sea was icy. I spun deep into it and felt my scalp freeze with the water. Then the life jacket bobbed me straight back up to the surface. It was heaven: I was alive. I turned and watched the balloon. Without my weight, it quietly soared back up through the cloud like a magnificent alien spaceship, vanishing from sight.
The helicopter flew over me and lowered a sling. I sat inside it like a swing, but each time it tried to lift me it dunked me back in the water. I couldn’t understand what was wrong, and I was too weak to hold on much longer. Eventually it winched me up and someone reached out and pulled me inside.
‘You should have put the sling under your arms,’ said a Scottish voice.
‘Where’s Per?’ I asked. ‘Have you picked up Per yet?’
‘Isn’t he in the balloon?’ the RAF man asked.
‘Haven’t you got him? He’s in the water. He’s been there ever since I took off again. About forty minutes ago.’
The pilot pulled a face. He spoke to someone on the radio, but it was difficult to make out what was said. The helicopter spun on its axis and headed off.
‘We’re taking you to our boat,’ the pilot said.
‘I want to look for Per,’ I said. ‘I’m fine.’
If he had survived the fall, Per would still be swimming – or, more likely, drowning – in the Irish Sea. The light was fading and, from the air, only his head would be visible. It was like looking for a football – a grey football in a grey stormy sea. The pilot took no notice of my arguments. Within two minutes we had landed on a ship and I was pulled on board. Without pausing for breath, the pilot took off immediately and headed back over the sea. I was marched across the deck and put into a hot bath. Then I went up to the bridge to see how the search was going. For ten minutes, fifteen minutes, twenty minutes, there was nothing. Then the radio crackled.
‘We’ve spotted him,’ the pilot said. ‘And he’s still swimming. He’s alive.’
Per’s struggles weren’t over. The winch that had pulled me up was now jammed, and so they had to attract a dinghy to rescue him. By the time the dinghy arrived, Per was almost dead. He had been in the water for two hours, swimming as vigorously as possible to keep his circulation going, but making no headway against the tide. He had no life vest on, and by the time of his rescue he was completely frozen and exhausted. It was extraordinary that he’d survived, and he later put it down to his experiences as a child, being forced by his father to swim every day in the icy lakes of Sweden.
We met on board the ship, and fell into each other’s arms. Per had been stripped naked and wore a survival blanket. His face looked like white marble. He was blue with cold and he couldn’t stop his teeth chattering.
For what it was worth, we were the first to cross the Atlantic in a hot-air balloon. More importantly, we were alive. We could not believe that we had both survived.
During the summer of 1987 British Caledonian had been struggling to stay in business. It took out a series of advertisements which showed businessmen singing ‘I wish they all could be Caledonian girls’ to the tune of The Beach Boys’ ‘California Girls’, and they made a great play about their cabin crew’s tartan. But it was no good: British Caledonian were losing money and in August they announced that they had agreed terms for British Airways to take them over.
It seemed to me that this takeover clearly breached the strictures of the Monopolies and Mergers Commission in that it was the largest and the second largest UK carriers forming one company with a market share across the Atlantic of well over 50 per cent. We complained to the Commission that this deal increased BA’s share from around 45 per cent to 80 per cent on several transatlantic routes, but the deal was still given the go-ahead in September. BA and B-Cal made great play that B-Cal would be run independently and the B-Cal cabin crew would continue to wear their tartan uniforms and retain their independence. Without B-Cal offering competition, BA could now turn its full attention to mopping up the last tiny British competitor – us – and then concentrate on dominating the Atlantic routes.
As the BA/B-Cal deal went ahead we realised that, as well as the threat that a larger BA would pose to us, this takeover could contain a hidden opportunity for us. We had already used the increased value of our first jumbo, which had risen in worth by $10 million, to leverage up and lease a second plane, which we were flying to Miami. We wanted to expand further. Under the terms of the Bermuda Agreement, which governs international air traffic between America and Britain, there is provision for two British carriers between America and Britain. Our lawyers also discovered that the Japanese intergovernmental agreement contained the provision for two British and two Japanese carriers to Japan. With B-Cal removed from the scene, Virgin Atlantic was now free to push itself forward and apply to fly these routes as the second carrier.
Just as surely as Mike Oldfield and The Sex Pistols had been turning points for Virgin Music, BA’s takeover of B-Cal was a turning point for Virgin Atlantic. Prior to their merger, we flew only to Miami and Newark Airport near New York. Now, as the second British long-haul carrier, Virgin Atlantic was entitled to apply for the routes that B-Cal had served and were duplicated by the BA/B-Cal alliance. Top of our list was to fly to JFK, the main airport at New York; Los Angeles; and Tokyo. Further down, we listed three other destinations that B-Cal had operated: San Francisco, Boston and Hong Kong. In 1987 we had just two aircraft. In order to fly to Los Angeles and Tokyo we would have to lease two more aircraft and double the number of our cabin crew.
In the meantime, as well as stalking B-Cal’s routes, we were also continuing to stalk Thorn EMI. In the last week of September, Trevor had finalised our £100 million loan with the Bank of Nova Scotia. Despite the stock market rising all summer, we felt that Thorn EMI was still undervalued. With £100 million at our disposal, we started buying on 25 September 1987. Undaunted by the size of EMI, we started putting in buying orders for 100,000 shares at a time. We decided to buy up to 5 per cent of the company before announcing our takeover bid. Even if our bid failed, we knew that in the long run the 5 per cent stake would increase in value.
Immediately rumours started going around the market that Thorn EMI was going to be bid for. Some days we bought 250,000 shares, costing us £1.75 million; other days we spent £5 million. Sometimes we sold shares to keep people guessing. We were stirring up the pot and ensuring that a high number of Thorn EMI shares were traded, which kept the bid rumours going. By the second week of October, our shareholdings had cost £30 million.
During the night of Thursday 15 October 1987 there was a hurricane in Britain. I remember walking from Oxford Gardens to Duende and looking across the green streets – they were carpeted with leaves. With so few people able to get to work as a result, the stock market was closed on Friday. But, in America, the selling of shares which had started on Wednesday became a stampede. I watched with amazement through Friday evening as the Dow Jones fell 95 points, then its largest one-day fall. The full significance of Wall Street’s crash did not really hit London and the rest of the world until Monday. The Sunday newspapers were full of optimistic noises, and even encouraged their readers to buy as many BP shares as they could. On Monday the Australian market was the first to open and fell by a fifth; Tokyo fell 1,500 points. I thought that this was a great opportunity to buy more Thorn EMI shares, and I called up our broker and asked him to buy £5 million worth of Thorn EMI shares first thing. I wanted to get in there before anyone
else and I was worried that someone else might have seized the opportunity. In the event I needn’t have bothered. I don’t think that anyone could believe their luck that there was a buyer in the market. The broker filled his order within twenty seconds, and asked me if I wanted to buy any more.
‘There’re tons more of it where that came from,’ he said.
Finally sensing a crisis, I paused. Even as I thought about it, the London stock market fell by 100 points, then another 100 points, then another 50 points – a full day’s fall of 250 points. That afternoon the Dow Jones crashed by another 500 points. Within a three-day period, the world stock markets lost around a quarter of their value.
Trevor and I got together. For me the immediate damage was that the price of Virgin had nearly halved in value from 160 pence to 90 pence. Someone worked out that I had lost £41 million in value on my shares in Virgin Group plc. The actual picture was much worse than this. The share price of Thorn EMI had dropped from £7.30 to £5.80, a drop of over 20 per cent, and the value of our shareholding had crashed to £18 million.
The Bank of Nova Scotia was unamused. With the crash in share prices, they asked for an immediate cash payment of £5 million. Oddly enough, I was still rather confident about buying Thorn EMI. I felt unaffected by the slump in Virgin’s own share price since I was never going to sell my shares anyway, and I was absolutely certain that the share price was grossly undervalued. And, since I was focusing more on the profits and cash flow from EMI, I began to see the stock-market crash as a golden opportunity to buy the company. But Mountleigh were blown apart by the crash – their share price collapsed by 60 per cent and they were unable to borrow any more money to buy shares in Thorn EMI, or anyone else for that matter.
That week I had a furious argument with the two nonexecutive directors whom we had brought in to represent the outside shareholders’ interests when Virgin went public. Sir Phil Harris and Cob Stenham were utterly opposed to continuing the siege of Thorn EMI and announcing a bid when we released our results later in October.
‘But it’s a unique buying opportunity,’ I said. ‘It simply cannot be true that Thorn is now worth only two-thirds of its value on Friday. We know the cash we can earn from its back catalogue, so in terms of straight cash to us it’s a bargain.’
‘There could be tough times ahead,’ they warned me. ‘This crash has changed the whole picture.’
‘But the people who buy records won’t stop,’ I said. ‘Most people don’t hold any shares anyway. They’ll carry on buying Beatles and Phil Collins albums.’
But everyone disagreed with me. They all wanted to see where the stock market went next. The Thorn EMI share price continued to fall until it reached £5.30. I was sure that, if we could present a united front, then we would be able to raise the money and buy Thorn EMI at a bargain price. I argued that there was no good reason for the crash, and that share prices would recover soon. I told them that there would never again be such a wonderful opportunity. But they all disagreed, and since I could not persuade them I had to let the matter drop. I expected the Virgin share price to jump up when we released our results. And so, when we announced that Virgin’s profits for the year ended July 1987 had more than doubled from £14 million to £32 million, we made no reference to Thorn EMI. As it happened, our share price did not move upward. Anything but. It was difficult to understand how Virgin could have floated with a share price of 140 pence the previous year, and then our share price be halved on the back of doubled profits.
The stock-market crash was the final nail in Virgin’s coffin as a public company. I knew that Don would be opposed to changing direction, but Trevor and I had a quiet chat about the logistics of going private again, and Trevor set about working out the finances that such a large buy-back would entail.
In July 1988 we announced that the management of Virgin would conduct a management buyout of Virgin Group plc. We could probably have got away with paying less than the original 140 pence per share, but we decided we would offer the same price we had sold the Group for on the stock market, a large premium over the 70 pence at which shares were changing hands just before our announcement. This meant that nobody who had invested in Virgin when it was floated – all those people in the queue outside the bank who had wished me well – would lose money. Our reputation would stay intact.
Trevor renegotiated the entire financial structure of the Virgin Group, and set in place the mechanics for going private at the end of November 1988. It was a colossal task made no easier when our advisers, Samuel Montagu, approached their parent bank, Midland Bank, to come and join the syndicate of lending banks, but were turned down out of hand.
Trevor decided to dispense with Samuel Montagu’s services in all but name. Rather than set up a syndicate of banks which would have had one leading bank as the point of contact and prime negotiator, he began to pull together a consortium of banks, each of whom he approached directly. This meant that he would have to do much more legwork, since he was speaking to them all individually, but it also meant that he could play each of them off against the others. In the end he arranged lines of credit with twenty different banks, and we drew up an overdraft of £300 million. We bought in the outside shareholders’ shares, refinanced the debt which had been secured upon our Virgin Group plc shares, and similarly for Virgin Atlantic.
With over £300 million of debt, we were so heavily borrowed that we knew we had to move rapidly if we were going to survive. We had to give up the idea of buying Thorn EMI, so we sold our shares, and concentrated on dealing with our own problems. I had always felt that the City had undervalued Virgin Music, and now we would have to see what its real value was. Don Cruickshank, Sir Phil Harris and Cob Stenham left Virgin. Don had carried out a superb job in recasting the company as one that could demonstrate clear lines of management. Trevor took his place as managing director.
Trevor and I set about finding other companies who might wish to invest in any of the Virgin subsidiaries as joint ventures. We wanted to replace the shareholders in the City with one or two key partners in various Virgin subsidiaries. The structure of the Virgin Group was about to become extremely complicated.
18 ‘Everything was up for sale.’
1988–1989
WHEN I HAD BOUGHT back Nik’s 40 per cent stake, I had been able to repay my £1 million overdraft because Virgin had suddenly released a string of hits starting off with Phil Collins. At the time I knew I was on a knife edge. Now the sums of money were far more daunting: we had a debt mountain of over £300 million, and we had to reduce it by £200 million within the first year. This pressure meant that everything was now up for sale. There were no sacred cows. If we received a good offer for a part of any Virgin business, then we would take it. Trevor, Ken and I began to put out feelers to see what level of interest there was. One of the first areas we looked at was Virgin Retail.
Trevor and I divided Virgin Retail into three separate divisions: the first comprised the rump of the record shops that we had kept back from selling to WH Smith, the typical high-street shops together with the Oxford Street Megastore; the second comprised Patrick Zelnick’s proposed Paris Megastore on the Champs Elysées, where Patrick Zelnick would set up a separate French subsidiary to invest in the shop; the third comprised the plans we had for Ian Duffell, the man who had designed and set up the HMV record shop on Oxford Street, and whom we had managed to persuade to join Virgin.
We offered him the chance to set up Virgin Megastores anywhere in the world, and we promised to back his judgement and let him have a direct share in the Megastores. Ian was one of the best record retailers in the business: he had excellent plans for the record shops and, for the first time since we opened our earliest batch of Virgin shops, I felt that we could be back on the map. His interest lay in opening a sequence of overseas Virgin Megastores.
We thought about setting up in America, but the retail rents at the time were astronomical and the competition was high. Instead we chose to open the first one i
n Sydney, which was a quiet market without much competition. There we could open a Megastore and experiment a little with different formulas without losing a lot of money.
In the meantime, the Paris Megastore was the first overseas shop to materialise. Patrick had found a grand old bank dating from the late nineteenth century. It had marble floors, soaring high ceilings and the most spectacular staircase. This grabbed my imagination. We knew that small record shops did not make enough money; they just attracted passers-by who were disappointed by the lack of depth of stock. Now that the 1970s were over and the cushions on the floor had been cleared away, the traditional Virgin shops seemed to have lost their identity and customer loyalty. We had to go for something bigger, where we could offer the best range of products in the world.
Patrick’s Paris Megastore was an incredible success. From its opening day it smashed all his sales forecasts and became the most celebrated shop in Paris. Indeed, it became far more than a shop: it became a landmark and a tourist destination. After a few months the Paris Megastore attracted as many visitors as the Louvre. Today it still generates sales per square foot over twice those of any other record store in the world. It seems that every teenaged Japanese and German tourist makes a pilgrimage there and buys huge numbers of CDs, and even the café at the top has become a smart place for French executives to meet. I was delighted for Patrick, but I still had no idea what to do about the British record shops.
We decided that it was time to bring some other people in to turn Virgin Retail around. Giving people their notice is always heart-wrenching, and I hate doing it. I hate confrontation and I hate disappointing people. I always try to give people another chance. But it was clear that this team was out of its depth and losing money without any hope of turning the company round. The final straw came when, after the end of the financial year, they admitted to us that the losses of Virgin Retail would be £2 million more than they had anticipated. By leaving it so late we were stuck.
Losing My Virginity: How I Survived, Had Fun, and Made a Fortune Doing Business My Way Page 23
