UK cableco Virgin Media has confirmed it is in talks with its US-based counterpart Liberty Global following press speculation about a potential acquisition.
The company said in a stock exchange filing that it is in discussions with Liberty concerning…
UK cableco Virgin Media has confirmed it is in talks with its US-based counterpart Liberty Global following press speculation about a potential acquisition.
The company said in a stock exchange filing that it is in discussions with Liberty concerning “a possible transaction”, adding that any deal would be subject to regulatory and other conditions.
Virgin Media and Liberty declined to comment further.
The brief regulatory filing followed an FT report on Monday night that cited sources suggesting Liberty could be just days away from bidding for the group, which has an enterprise value of more than US$20bn, and around US$9bn in debt.
The report added that the deal had not been finalised and could still fall apart.
Analysts at Citi said a bid premium of 7x would imply US$41.75 per share, and one of 7.5x would mean US$47.40 per share.
“As an indication, 2-2.5x 2013E EBITDA in equity with the rest (5.0x say) financed with debt at the Virgin Media level would imply an equity commitment from Liberty of £3.5-4.3bn ($5.5-6.8bn),” they stated in an investors note.
Although based in the US, Liberty has been snapping up assets in the European cable sector, which in the last decade has typically been the hunting ground of private equity firms looking to profit from leveraged buyouts. Liberty currently has operations in 11 European countries, and investor activity in the sector has recently seen the IPOs of Ziggo in the Netherlands and KDG in Germany.
Last month media veteran John Malone, who controls Liberty, had to settle for a 58% stake in Belgium’s Telenet, up from 50%, after falling short of a full €2bn (US$2.7bn) takeover.
In the UK, Virgin Media competes with the country’s incumbent fixed line operator BT for fibre services, and it runs an MVNO on EE’s network. The group also operates a pay-TV platform that faces heavy competition from local DTH operator BSkyB as well as BT.
According to analysts at Bernstein Research, although an acquisition would not create any cross border synergies for Liberty, there may be long-term value from moving its listing away from the US to the UK. However, it said in an investors note that the immediate value was not so compelling, and it was unclear whether the market will improve for Virgin Media in the longer term.
The note said Liberty has turned its attentions to an asset that appears more aimed at becoming a better bride for local mobile operator Vodafone than anything else. However, given Vodafone’s recent acquisition of British fixed line operator Cable & Wireless Worldwide, such a combination could require significant remedies.
Bernstein Research has also previously suggested that Vodafone could acquire Liberty to offset the increased pressure on European wireless-only offers by “desperate discounters and defensive incumbents selling quad play”.
Ovum analyst Adrian Drury pointed to the cost savings that a Liberty/Virgin Media deal could generate through pooling the purchasing of technology and set top box assets. Liberty has been deploying a pay-TV platform called Horizon across Europe, and Drury said it could leverage on common standards across its operations to reduce costs.
“If Malone closes the deal, this will be a very interesting competition to watch and real test for the Liberty vision of the future of cable TV and internet services,” he said.
“Also expect that there would be some collateral damage, potentially other UK telcos trying to solve their triple play pay-TV challenge, such as Talk Talk and BT.”
Capital World Investors is Virgin Media’s largest shareholder with a 14.61% stake, followed by Capital Research Global Investors with 10.88% and Manning & Napier Advisors LLC with 6.49%.
As TelecomFinance was going to press, Virgin Media’s stock had soared 15% since opening on the LSE to reach around £29.48 per share.
Owing to its history with Liberty and Virgin Media, it is likely that Goldman Sachs will be brought in to play a prominent role in advising the deal.
