Liberty Global Inc.
) continues to dominate the European pay-TV market with constant
acquisitions of major cable MSOs across the region. Its latest
addition will be UK's leading cable MSO
Virgin Media Inc.
) for a total consideration of nearly $16 billion or $23.3
billion of enterprise value.
Liberty Global is expected to make a payment of $47.02 for
every Virgin Media share based on its Feb 4 closing price. The
company is expected to receive the payment in both cash and class
A and class B shares.
Per the agreement, the company will pay each Virgin Media
shareholder (totaling 335 million) $17.50 in cash, 0.2582 Liberty
Global Series A shares (totaling 86 million) and 0.1928 Liberty
Global Series C shares (totaling 65 million).
Both Series A and Series C shares of Liberty Global closed at
$69.46 and $64.50, respectively on February Feb 4, 2013. The deal
is expected to close by the end of the second half of fiscal
2013, subject to shareholders and other regulatory approvals.
At the end of its recently concluded quarter, Liberty Global
has nearly $4.2 billion in cash and marketable securities and
$26.5 billion of outstanding debt on its balance sheet. However,
the company requires $5.9 billion in order to make cash payments
to Virgin Media shareholders. So the required amount will be
financed through a combination of debt financing and available
liquidity of both Liberty Global and Virgin Media.
The deal, once materialized, will produce cost synergies of
$180 million for Liberty Global apart from helping the company to
establish a strong foothold in the BSkyB dominated UK market.
BSkyB, which is partially owned by
), has 10.7 million subscribers, compared with Virgin Media's 4.9
million. The successful integration of Virgin Media will create a
dominant force in the highly lucrative UK pay-TV market.
Moreover, the roll out of Liberty Global's Horizon TV and Virgin
) next-generation TV platform will drive subscriber growth going
The UK telecom market is extremely competitive with low
barriers to entry. Since its inception, Virgin Media incurred
annual losses till 2010. Precipitous losses may create severe
problems for the company going forward.
The UK government raised the value added tax (VAT) in January
2011. Virgin Media may not be able to pass the full amount of the
increased VAT to its customers as it may affect the company's
ARPU in the near term.
Moreover, weaker cash position of nearly $173 million and huge
debt of more than $9 billion (with debt-to-capitalization ratio
of 0.92) followed with network upgrade program initiated by the
company may affect the company's future growth prospects going
Hence, the only option left with Virgin Media to counter such
bottlenecks is to merge with Liberty Global where both will be in
a win-win position.
Currently, Liberty Global has a Zacks Rank #2 (Buy).
LIBERTY GLBL-A (LBTYA): Free Stock Analysis
NEWS CORP INC-A (NWSA): Free Stock Analysis
TIVO INC (TIVO): Free Stock Analysis Report
VIRGIN MEDIA (VMED): Free Stock Analysis
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