Virgin Media bought by Liberty Global for £15 Billion

The early part of February was filled with speculation over Virgin Media’s announcement confirming “that it is in discussions with Liberty Global, Inc., a leading international cable company, concerning a possible transaction”.

The news had an immediate impact on Virgin Media’s share prices on the London Stock market, increasing by 15% and had the potential to dramatically affect the telecoms market. Virgin Media was originally a merger in 2006 of NTL and Telewest, both cable companies, with Virgin Mobile. Richard Branson kept a 3% share and gave the merger the Virgin Group branding.

The company’s 2012 annual results included pre-tax profits of £261m and a revenue increase of 2.7% increase to £4.1bn. Consumer growth was highlighted in the report showing 42,700 extra customers in the fourth quarter, and 59,900 pay TV customers.

Neil Berkett, the Virgin Media CEO who is to step down at the completion of the merger, concluded from these results: “2012 was a year of record cable growth, where mainstream demand for superfast broadband and TiVo has led to lower churn and a strong increase in new subscribers. Combined with growth in our business division, we have delivered solid financial progress.”

Following the report, Liberty Global, an international cable operator and media firm, confirmed the buyout deal of $23.3billion (£15bn).

The transaction could ensure Liberty Global be rated as the world’s leading telecoms company with a large portion of its revenue coming from the UK. Relocating its headquarters to London, Liberty Global has started a recruitment drive for telecom jobs in the capital and key UK hubs. Virgin Media currently has 450 office employees in Knowsley and 200 field staff around Liverpool.

For John Malone, the billionaire chair of Liberty Global, the takeover may not be only a strategic business move, it could also serve to rattle his main competitor: Rupert Murdoch.

Ovum principal analyst Adrian Drury commented: “While Liberty’s play for Virgin is likely to be driven by its long term vision for the value a foothold in the UK will have a pan European triple-play business, and the competitive need to fight News Corp at this scale, in the near term it will make the UK the ring for a straight slug fest between two global pay-TV heavyweights, John Malone and Rupert Murdoch, as they battle for UK fixed broadband, fixed voice and pay-TV subscribers. Depending on how Malone might choose to leverage the Virgin Mobile asset, it may also spill over in consumer mobile services”

This is the second direct battle between Malone and Murdoch. Ten years ago, Liberty Media competed with Murdoch’s News Corp for the control of DirecTV Group, the largest U.S. satellite TV broadcaster. The situation was resolved by a compromise agreeable to both parties; with Malone acquiring a one-third stake in DirecTV from News Corp and selling its own 16% share of News Corp to allow Murdoch greater control over the business.

Murdoch may have reason to worry, since before the takeover Liberty Global was rated the second biggest telecoms company in the world, operating in 13 countries. Virgin Media was only second to Murdoch’s BskyB group in Britain.

Berkett highlighted the benefits of the deal: “Virgin Media and Liberty Global have a shared ambition, focus on operational excellence and commitment to driving shareholder value. The combined company will be able to grow faster and deliver enhanced returns by capitalising on the exciting opportunities that the digital revolution presents, both in the UK and across Europe.”

The forthcoming year should prove interesting for the global telecommunications market, with the UK taking centre stage.

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