By Rebecca Burn-Callander Wednesday, 06 February 2013

Liberty Global buys Virgin Media for £15bn

Virgin Media has signed on the dotted line. US cable tycoon John Malone now owns Europe's largest broadband provider.

Virgin has accepted Liberty Global’s £15bn takeover bid, creating a European broadband business to rival the might of Rupert Murdoch’s Pay TV empire.

The deal has been a long time coming for Malone, who has been trying to get into the UK cable market for years through the attempted takeover and merging of NTL and Telewest. He was cut out of the action when the two firms merged under their own steam to form Virgin Media – and finally, the company is under Malone’s control.

Virgin Media is an important piece of the global puzzle for Malone, but the business itself has not been doing well, groaning under £2.6bn worth of losses. However, the timing of the deal couldn’t be more opportune. Virgin Media will offset its losses against its future corporation tax payments – one of the nice things about operating in the UK tax environment – so Liberty Global will not be saddled with the firm’s debts.

In order to take advantage of HMRC’s generosity, the new company will remain headquartered in the UK. MT hopes Mr Malone has a tin hat ready, as this kind of (perfectly legal) tax avoidance has beecome rather controversial in recent months.

The deal will see the new company serve 25 million customers across 14 countries.

Mike Fries, chief executive of Liberty, says of the deal: ‘Virgin Media will add significant scale and a first-class management team in Europe's largest and most dynamic media and communications market. After the deal, roughly 80% of Liberty Global's revenue will come from just five attractive and strong countries – the UK, Germany, Belgium, Switzerland and the Netherlands.’

Virgin will keep its branding after the acquisition – the brand already boasts some five million customers in the UK. However, Neil Berkett, Virgin Media CEO, will be stepping down from his role once the merger concludes.

Lamone’s cash and shares offer values Virgin at $47.87 per share, adding a 24% premium to the closing price yesterday, before news of the deal had broken. Virgin investors will receive $17.50 in cash and own 36% of Liberty's shares once the deal is complete.  Liberty Global has also hinted that a European listing could be on the cards.

The loss of Virgin Media will be no great shakes to Virgin billionaire Richard Branson. The Virgin holding company only retains a 3% stake, worth just £10m a year in license fees. But there is one person who might be eyeing the deal with chagrin.

BSkyB tycoon Rupert Murdoch will be watching very carefully to see if Liberty Global begins circling any content producers or bidding for sports rights. It’s a dog eat dog world out there is media land, and Virgin Media, now part of the Liberty Global family, has just become a pit-bull.

Read the Liberty Global/Virgin Media story so far...

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