Liberty Global Inc. (LBTYA)’s Acquisition of Virgin Media Inc. (VMED): Gold Still in the Mines?

Liberty Global Inc. (NASDAQ:LBTYA) must be crossing its fingers hoping that it’s proposition to acquire Virgin Media Inc. (NASDAQ:VMED) goes through. Virgin Media confirmed on Tuesday, Feb. 5, that it was indeed in talks with Liberty Global for a possible deal following a spell of media speculation.  John Malone’s Liberty Global seeks to tap into the European market, currently dominated by Rupert Murdoch’s News Corp (NASDAQ:NWSA).

News Corp is the owner of British Sky Broadcasting, the U.K’s largest media company. Virgin Media is based in the U.K, and the U.K is Europe’s biggest market for video streaming and services. The acquisition of Virgin Media will give John Malone the opportunity to compete against Murdoch in Europe.

Liberty Global IncThe Deal

According to reports on Feb. 5, Liberty is expected to table a bid of $20 billion for the U.K.-based company, which operates under Richard Branson’s brand, Virgin. However, the British billionaire is believed to own less than 3 percent in Virgin Media. The $20 billion (£12.7 billion) valuation would mean a stock price of $42 per share. However, the latest reports indicate that the deal could be valued at about $47.87 per share, or a 24 percent premium on Feb. 4′s closing price.

Virgin Media debt stood at £5.7 billion just before the announcement of a possible deal. Based on the initial speculation, this would mean that Virgin Media’s equity is valued at about £7 billion. However, if the price of $47.87 as indicated in the follow-up reports happens to be final, Virgin Media’s equity would be valued at just under £8 billion. Liberty Global and Virgin Media jointly issued a press release indicated a price of $47.87 per share.

Whether this happens to be cheap or expensive would depend on the post merger value. Analysts from Bank of America Merrill Lynch believe tha tLiberty’s chances of benefiting from the deal are attached to the consequential presence in Europe. The analysts believe that Liberty would not gain any tax benefits from the deal, despite the operating losses and capital allowances on Virgin Media’s books.

Virgin: gold still in the mines

Virgin Media’s operating losses of about £2.2 billion and capital allowances estimated at £12.9 billion would have provided immediate benefits to the acquirer if from the U.K.  However, Liberty’s domicile, (UPC) based in the Netherlands, rules out immediate benefits.  Liberty would have to register UPC as a “Societas Europea” (SE), in order to capitalize on Virgin’s tax assets and capital allowances.

Additionally, Rupert Murdoch’s News Corp remains the company to beat.  Murdoch is reportedly pursuing the acquisition of 7 companies, which he expects to spend about $1.3 billion on. This would give News Corp additional muscle and presence to thwart any challenge from rivals.

Virgin Media’s most recent adjusted earnings missed analyst estimates sending the shares down, despite the announcement of the impending acquisition by Liberty just a day before. Nonetheless, analysts are optimistic that the company will post impressive results for the March quarter.

Bottom Line

John Malone has proven to be a shrew investor as far as long-term potential is concerned. A good example is the case of Sirius XM, whereby his company Liberty Media now owns just less than 50 percent, but is soon expected to increase stake well beyond the half way mark. The satellite radio services company rally in 2013 seems unstoppable, with the exit of Karmazin as CEO. Virgin Media would give Liberty a wider accessible market in a continent where Liberty has been lacking a presence. The combined package also has a subscriber base estimated at 24 million across the globe.

The article Liberty’s Acquisition of Virgin Media: Gold Still in the Mines? originally appeared on Fool.com and is written by Nicholas Kitonyi.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!