Virgin sheds Our Price stores

The Our Price shops will change name to Sanity

Sir Richard Branson's Virgin Group has sold its troubled Our Price record shops in the UK to the Australian music and lingerie retailer Brazin.

Sanity Music is Australia's leading label

Virgin has committed £7.7m ($11.2m, 21.8 Australian dollars) over the next six months to a restructuring of the stores, which last weekend were sold for a symbolic £2.

In return, Brazin has paid Virgin the same amount, £7.7m, for the assets owned by Our Price.

"In terms of cash, it is not costing us anything," Virgin Entertainment Group Simon Wright told BBC News Online, citing tax reasons for the cross payments.

"We're basically selling the business for nothing," he said.

Market entry

Brazin will use the shops in the Midlands and North London to promote its Sanity Music brand, Australia's largest.

"The UK music market is one of the few markets throughout the world to have grown strongly in the last 12 months," said Brazin's managing director, Ian Duffel.

"We expect to see a 50% increase in music revenues from day one."

Partnership

The Our Price chain is believed to have contributed a fair share of Virgin Retail's £10.3m operating loss during 2000.

Sir Richard will receive a symbolic £2 for the Our Price stores

But its deal with Brazin does not merely aim to shed unwanted real estate.

In addition to the £7.7m cash injection in the Our Price shops, Virgin will offer a £2m loan facility.

On the plus side, Virgin will receive 1% of the turnover from some of Brazin's record shops.

"And if they're able to make a profit [from the Our Price stores] in the next five years, then we'll get 30% of that," Mr Wright added.

Virgin will also receive options that gives it the right to buy 1.5 million shares in Brazin for 1.27 Australian dollars at any time between 15 October 2003 and 14 October 2011, Mr Wright explained.

On 18 October 2001, the stock was trading at 1.5 Aussie dollars.

Brazin has made a commitment to restrict the size and proximity of its Sanity stores in the UK to ensure they do not pose a large competitive threat to Virgin's record shops.

Mobile phones

Virgin will also sell its mobile phones through the Sanity stores in the UK.

In Australia, the mobiles will be sold by Brazin's IN2 Music shops which will be rebranded as Virgin Music.

Virgin and Brazin have also discussed other joint ventures, Mr Duffel said.

Virgin's other operation Down Under is the discount airline Virgin Blue.