Pan-European cable company Liberty Global has announced a $23.3 billion acquisition of the UK’s Virgin Media that looks set to shake up the country’s telecoms, broadband and pay-TV markets.
The transaction includes a mixture of cash and Liberty Global (Amsterdam, Netherlands) shares and values Virgin Media (Hook, UK) at $47.87 a share – 24% higher than its closing price on February 4.
The deal will increase Liberty Global’s customer base to 25 million and give the company a major presence in one of Europe’s biggest markets.
“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,” said Mike Fries, the president and chief executive of Liberty Global.
Fries expects the tie-up to yield cost savings of about $180 million a year on full integration. “But just as importantly, Virgin Media’s market-leading innovation and product expertise, particularly in mobile and B2B, will accelerate the development of these business segments,” he said.
The backing of Liberty Global should also make Virgin Media a stronger rival to Rupert Murdoch’s British Sky Broadcasting (London, UK), which dominates the UK’s pay-TV sector, and will increase the pressure on smaller pay-TV players like BT (London, UK) and TalkTalk (London, UK).
Liberty Global intends to pile another $3 billion on to Virgin Media’s debts to help finance the $5.9 billion cash component of the equity purchase price.
The combined company would have reported revenues of $16.8 billion and operating cash flow of $7.5 billion in 2012, said Virgin Media and Liberty Global in a statement.
News of the deal followed Virgin Media’s publication of fourth-quarter results that showed a 1.6% increase in revenues, to £1.04 billion, but a 1.4% drop in free cash flow, to £138 million.
The dip was blamed on investments made to support higher-speed services, and Fries told analysts that Liberty Global was likely to accelerate that program.
However, he played down speculation the combined company might effectively challenge Sky in the bidding for lucrative sports-broadcasting rights, saying it would be unlikely to change Virgin Media’s strategy with regard to premium content.