Branson ignored Yates as she left the party close to tears. Later, revealing that exhaustion from work had brought her close to a breakdown, she received a telephone call from Branson’s office. ‘Richard’s paid for a two-week holiday for you in Greece,’ said a secretary speaking on behalf of Britain’s ninth wealthiest man. Yates was grateful until she arrived in the Mediterranean. The accommodation was uncomfortably cheap and her ticket, she discovered on her return home, was a standby. Barred entry to her flight, she slept overnight on an airport chair.
Branson knew Ali Yates would never complain. He credited her silence to loyalty and gratitude. His caprice was never questioned by the beneficiaries of his generous hospitality. Celebrity and success had hardened his attitudes, especially towards a handful of disenchanted admirers. There appeared no reason for him to doubt the public’s adulation. His tiny airline, thanks to the boat race and the spectacular balloon flight, was also acclaimed. Wherever he travelled, he was greeted as a hero. Only a negligible minority carped that Branson, like his balloon, was an overblown container of hot air. To Branson’s misfortune, the dissidents included some powerful voices in the City.
The newspapers’ adulation cushioned Branson from the City’s scepticism.
‘No one’s buying your stock because you’re not wooing them,’ a banker told Branson. The price of Virgin’s shares had barely risen above their offer price. ‘They think Virgin is a shambles.’
‘It’s the City,’ Branson grumbled. ‘They don’t understand.’ Since he had failed to get what he wanted, the City, he concluded, was unfairly prejudiced, treating him as a hick. Blame was always attached to someone other than himself. He was blind to his own failure to explain his business adequately to the City. The victim overlooked his advantage over the past months – which he owed to the City – of enjoying an interest-free £200 million loan.
‘They’re only thinking short term,’ complained Branson, forgetting his own impatience with the failure of Event to produce rapid profits. Virgin, he insisted, was undervalued. The company’s profits, according to Virgin’s accountants, were rising dramatically yet the analysts were casting doubts. Branson, they sniffed, had failed to fulfil his promise to produce good profits in America. City analysts, Branson cursed, were a dislikeable breed, ignorant about his business. His irritation in turn aggravated the more conservative financiers.
Those same bankers, who months earlier had chuckled about their endearing client driving in a Renault 5 to meetings in the City with packets of Mates spread across the back seat, were also fathers of young children. They disliked Branson’s later collaboration with Michael Grade, the director of programmes of BBC Television, to foist crude sexual descriptions and exaggerated alarm about Aids into young children’s television programmes. Branson nonchalantly rebuffed their comments. Describing sexual acts on children’s television was quite appropriate. Branson was proud of his unconventional values.
City practitioners also mentioned rumours about ‘conflicts of interest’. Trevor Abbott was managing the finances in both the private and public companies, suggesting that Branson was managing the music and airline businesses as a single entity. Branson, they murmured, appeared to enjoy the dark. ‘You’re very secretive,’ pronounced one banker.
Branson grinned. His youthful manner normally defused tension and disputes. In London’s clubland, Branson’s decision to sell Virgin’s shares in British Satellite Broadcasting (BSB), the satellite television station, to Alan Bond, the Australian tycoon, aroused mirth. BSB had, despite Branson’s bravado, disastrously failed against Rupert Murdoch’s competition. Incompetent management, profligate waste, rivalry among the founders and bad programmes had caused losses of £60 million. He had hastened the sale after hearing from Per Lindstrand that Bond was on the verge of bankruptcy. The sale of Virgin’s 12.5 per cent stake in BSB earned a £2 million profit. With hindsight, if he had waited until 1994 when Murdoch floated BSkyB, the joint company, his stake would have been worth £300 million. But Branson’s ambition to create a worldwide media empire was flawed by his short-term attitude and his lack of creative ability. Robert Devereux’s management of Virgin’s 45 per cent stake in Super Channel and the Music Box was similarly mediocre. Neither Branson nor his brother-in-law were inspiring managers of media businesses.
‘People suspect that you’re not telling us the whole truth,’ continued the banker uneasy about new whispers that Branson was secretly buying shares in EMI, the major record producer. On this occasion the banker’s irritation could not be placated by Branson’s equivocation. Branson, his ‘waters told him’, was holding back. His instinct was accurate.
Without retaining bankers as advisers, Branson and Abbott had decided that Virgin should launch a takeover bid for EMI, a company they believed was greatly undervalued. Both were undaunted that EMI was ten times bigger than Virgin and would cost about £2.6 billion, far in excess of what Branson could raise. The birth of his secret scheme was a shambles.
Abbott’s genius was to negotiate a £100 million loan from the Bank of Nova Scotia, allowing the two to begin spending £30 million on secret purchases of EMI shares. Occasionally, Stenham and Harris, the two non-executive directors, were not told, which was a clear breach of the company’s rules. Their unusual trade provoked questions around the City whether Branson would bid for EMI. ‘These rumours,’ he replied, ‘have no basis in fact … we have no plans.’ By then, he had accumulated a large percentage of EMI shares in anticipation of the bid.
On Monday, 19 October 1987, the world’s stock markets crashed. The value of EMI’s shares fell by 20 per cent and Virgin’s share price collapsed from 160 pence to 83 pence. Undeterred, Branson wanted to launch his bid to buy EMI cheap but, he complained, Harris and Stenham vetoed his plan. Instead, they insisted that Branson should personally reimburse Virgin for its losses. His glacial stare at the directors signalled the beginning of their divorce.
That week, Branson travelled with a Virgin executive by taxi to a meeting of Parents Against Tobacco, a group which he sponsored to campaign against the promotion of smoking. The revelation of his secret purchases and his new debts had aroused anger among the bankers at Samuel Montagu. Their reluctance to defend Branson, caught in the public spotlight, intensified suspicions. ‘Give us a fag,’ he sighed to his companion. ‘I’m knackered.’
The City’s distrust could not be dispelled, even after Virgin announced a rise in profits from £14 million to £32 million. In the aftermath of the crash, most share prices remained low, and Virgin’s was stuck at around 80 pence, nearly half their original value. Abbott was alarmed. With Branson’s encouragement, he had borrowed over £100,000 to buy Virgin shares at the flotation. He had lost half his money and could not repay the banks. His secret proposal to Branson was radical. ‘Why don’t we privatise the company? Buy the shares back from the public?’ The flotation, he told Branson, had become an albatross. ‘You can’t borrow money using Virgin shares as collateral,’ he explained. ‘Nor can the music business use the cash generated by the airline.’ Branson listened. His second attempt to establish a music business in America was failing to produce profits. Abbott was proving his value, repeatedly pulling levers and shuffling money to keep the group afloat. Thanks to Abbott’s financial engineering, the recent losses of Virgin Retail had been obliterated by transferring Virgin Music’s profits to the loss-making company. Branson