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Liberty Global agrees US$23 billion Virgin Media deal

Liberty Global CEO Mike Fries

Liberty Global and Virgin Media have agreed a deal whereby the international service provider will acquire the UK’s sole large-scale cable operator in a stock and cash merger valued at approximately US$23.3 billion (€17.2 billion) in enterprise value terms, including debt. The deal gives Virgin Media an equity value of US$16 billion.

Virgin Media CEO Neil Berkett has said he will step down when the deal is complete.

Virgin Media shareholders will receive US$17.50 in cash, 0.2582 Liberty Global Series A shares and 0.1928 Liberty Global Series C shares for each Virgin Media share that they hold. Based on Liberty Global’s share price on February 4, this gives Virgin Media shares a value of US$47.87, implying a 24% premium on Virgin Media’s share price.

The merger of the two companies will create a service provider with 25 million customers across 14 countries.

“Adding Virgin Media to our large and growing European operations is a natural extension of the value creation strategy we’ve been successfully using for over seven years. 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,” said Liberty Global CEO Mike Fries. “Like all of our strategic acquisitions we expect this combination to yield meaningful operating and capex synergies of approximately US$180 million per year upon full integration. But just as importantly, Virgin Media’s market leading innovation and product expertise, particularly in mobile and B2B, will accelerate our own development of these business segments.”

Fries said that the deal would provide “attractive free cashflow enhancement” and would enable it to increase its share buyback commitment. The company has set a buyback target of US$3.5 billion over a two-year period after the deal closes.

Liberty Global intends to increase Virgin Media’s debt by over US$3 billion to help finance the cash element of the deal, which amounts to US$5.9 billion. Liberty Global will also tap its existing credit facilities to finance the acquisition.

Liberty Global will also transfer its business address from Delaware to the UK as part of the deal and become a subsidiary of a UK plc holding company. Liberty Global said the creation of a new UK-based holding company would have a number of benefits, “including increased strategic and financial flexibility, as it pertains to value creation for shareholders”. The company will be listed on the NASDAQ exchange but may also look to implement a European listing.

John Malone, who controls about 35% of Liberty Global’s voting stock, has committed to support the acquisition, as has Richard Branson, whose Virgin Group holds a 3% stake in Virgin Media.

“This deal is good news for the company, its customers and our people. Together, Liberty Global and Virgin Media are in a great position to shake up the industry and bring the full power of digital technology to UK consumers,” said Branson.