Rating agency Standard & Poor's (S&P) is keeping a
positive outlook on media conglomerate
Liberty Global Inc.
) following its agreement to acquire UK's leading cable multi
service operator (MSO)
Virgin Media Inc.
) for an enterprise value of $23.3 billion.
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The rating agency affirmed Liberty Global's ratings at B+,
keeping the company's debt four tiers below the investment grade.
The company's rating could improve by one notch as the S&P
believes that the acquisition will improve its asset portfolio
and strengthen its cash flow generation.
Liberty Global will acquire 100% stake in Virgin Media in a cash
and equity deal. Per the deal, the former will pay $47.02 in
cash, 0.2582 Liberty Global Series A shares (totaling 86 million)
and 0.1928 Liberty Global Series C shares (totaling 65 million)
to each Virgin Media shareholder.
At the end of the recently concluded quarter, Liberty Global has
nearly $4.2 billion in cash and marketable securities in 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
The deal, which is expected to materialize by the end of the
first half of 2013, 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. Moreover, the roll out of Liberty Global's Horizon TV
and Virgin Media's popular
) next-generation TV platform will drive subscriber growth going
forward. We believe that the successful integration of Virgin
Media with Liberty Global will create a dominant force in the
highly lucrative UK pay-TV market and improve the latter's growth
At the end of the previous quarter, Liberty Global had nearly
$26.5 billion of outstanding debt on its balance sheet. Following
the deal, Liberty will have to takeover Virgin Media's
outstanding debt of $9 billion. This could act as a deterrent for
the improvement in Liberty Global's debt rating as its high
leverage position could significantly impact the company's future
Currently, Liberty Global has a Zacks Rank #2 (Buy).