Decided: Virgin Australia Sold To Bain Capital After Competitor Cyrus Exits Bidding Process, Administrators Under Scrutiny

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The fate of Virgin Australia has been sealed and that the airlines new owner will be Bain Capital as the only competing bidder in the process, private equity firm Cyrus Capital has withdrawn it’s bid.

The administrators of Deloitte have just confirmed Bain Capital as the new owner and that the company sale will be finalized by August, however the fashion in which the bid was transaction has already drawn scrutiny and prompted calls for an inquiry.

As the last two bidders in the process, both Bain Capital and the Richard Branson affiliated Cyrus Capital had placed strong offers but for whatever reason it appears that the appointed administrator of Deloitte didn’t engage with Cyrus Capital in a suitable form that gave them trust in the process.

News Australia (access here) reported that Cyrus decision to rescind their offer came as a shock.

Virgin Australia will be sold to American private equity firm Bain Capital, its administrator has confirmed.

The sale should be completed in August with minimal conditions are attached, administrator Deloitte 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,” Virgin administrator Vaughan Strawbridge said.

The transaction carries forward all Velocity frequent flyer booked flights, honours all employee entitlements, and supports the current management team led by Virgin Australia chief executive Paul Scurrah and their improvement plan for the airline.

“We believe Bain Capital’s proposal offers the best possible future for Virgin Australia, its employees and its customers,” Mr Scurrah said.

“We are aligned in our vision for Virgin 2.0 and look forward to working with them to secure the airline’s future.”

Boston-based Bain was named buyer today after its bidding rival Cyrus Capital Partners, a New York-based hedge fund, made a surprise announcement it would withdraw its bid, citing “lack of engagement” by Virgin administrator Vaughan Strawbridge.

Cyrus said it had not heard from Mr Strawbridge since it lodged its formal binding offer for the airline on Monday.

Virgin Australia went into administration in April with close to $7 billion owed to creditors.

Deloitte said it does not expect any return to shareholders, and at this stage it isn’t possible to estimate the return to Virgin’s creditors.

Earlier today, Cyrus said it had withdrawn its bid, complaining Virgin Australia’s administrators “have not returned calls, emails, or meaningfully engaged with Cyrus to progress its offer”.

Cyrus founder Stephen Freidheim said he was “disappointed that it has become necessary to withdraw our offer”. …

It would be interesting to hear if Bain Capital decides to honor the travel vouchers issued to customers whose flights were cancelled and where the airline refused or was unable (due to lack of funds) to reimburse passengers in cash.

Previously it was announced that the new owners would be under no legal obligation to accept these vouchers as payment and it was up to them to decide what to do with them.

There are already voices in Australia who call for an inquiry into the conduct of Deloitte’s administrator Vaughan Strawbridge to investigate the allegations that he has neglected his duties to conduct a fair bidding process by directly causing Cyrus to withdraw their bid due to his lack of communication for the entire week.

However it should be noted that Cyrus Capital still has an affiliation with Richard Branson who also owns part of Virgin Australia. It’s entirely possible that they stayed in the game until late to keep the price up and then took the parachute out, leaving Bain as the only remaining party interested to buy VA.

Conclusion

At least tickets booked with Velocity miles won’t lose their value per this announcement even though the remaining creditors will probably be left empty handed following the administration.

Virgin Australia won’t be the last airline that is going under in this economic environment where travel bans prevail and Australia is mulling an extension of it’s travel ban well into 2021. At least the airline found a buyer but with this outlook it’s hard to say what Bain Capital sees there in the long run. IF there is a long time plan at all.

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