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Virgin Media goes out on a high as it agrees to bid from Liberty Global

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Two of the world’s biggest cable TV operators are to combine in a US$23.3bn deal that will see Virgin Media (LON:VMED) (NASDAQ:VMED) taken over by Liberty Global (NASDAQ:LBTYA).

News of the merger broke overnight on Monday, since when negotiations have been quickly wrapped up withVirgin Media’s board agreeing to an offer on the basis of US$17.50 in cash plus 0.2582 Liberty Global ‘A’ and 0.1928 Liberty Global ‘C’ shares for eachVirgin Media share held.

Based on closing prices of Liberty Global shares on February 4 the terms value each Virgin Media share at US$47.87, equivalent to £30.59 per share.

Virgin Media’s shares shot up to $45.61 yesterday as news of the bid talks leaked out, but were down $1.14 this morning to $44.47 before noon. 

Liberty Global is a US-listed cable company but it operates entirely outside of the US in 13 countries, 11 of which are in Europe. Gaining control of Virgin Media will give it an entry to the UK, where it will go head to head with the likes of BT(LON:BT.A), British Sky Broadcasting (LON:BSY) and TalkTalk Telecoms (LON:TALK).

Media reports have focused on the potential for a renewal of competition between John Malone, chairman of Liberty Global, and Rupert Murdoch, whose News Corporation owns a substantial stake in British Sky Broadcasting (BSkyB).

Over the years Malone and Murdoch have been both collaborators and competitors; at one point Malone had an 18% stake in News Corp but exchanged it for News Corp’s holding in US satellite business DirecTV

The backing of Liberty Global will likely make Virgin an even tougher competitor to BT and BskyB, the major players in the so-called triple-play (phones, Internet, pay-TV) market in the UK.

Liberty and Virgin said the combined group would be the “world’s leading communications company”, covering 47mln homes and serving 25mln customers across 14 countries.

According to the merger announcement, the two companies have “complementary strengths across product suite, with aligned triple-play products, roadmap and expertise across digital TV, broadband and telephony services”.

Mike Fries, president and chief executive officer of Liberty Global, said: “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."

In a separate announcement, Virgin Media revealed it saw fourth quarter revenue edge up 1.6% to £1,039.7mln in the fourth quarter from £1,023.7mln the year before.

Consumer cable customer net additions surged to 42,700 from 15,000 the year before, taking the number of full year net additions to 88,700 (2011: 5,600), which is record for the company.

“We added a net 112,700 triple-play customers in the year and 36,800 during the quarter, increasing triple-play penetration to 64.9% compared to 63.7% a year ago,” the company said.

Average revenue per user (ARPU) on the Cable side of the business improved to £48.87 in the fourth quarter from £47.85 in the corresponding period of 2011, while ARPU per Mobile customer eased to £15.13 from £15.46 a year earlier.

Fourth quarter earnings per share on a diluted basis from continuing operations shot up to 819p from 16p the year before.

The company has declared a fourth quarter dividend of 4 cents, unchanged from a year earlier.

Quick facts: Virgin Media

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