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.

Comments
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

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!