The Massive European Cable Deal: Virgin Media Inc. (VMED), Liberty Global Inc. (LBTYA)

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Complications and Legal Issues

Given the 24 percent premium that Liberty Global Inc. (NASDAQ:LBTYA) has offered for Virgin Media Inc. (NASDAQ:VMED)’s shares, it seems unlikely that the smaller company’s shareholders will object to the deal. Likewise, approval by the company’s board of directors appears all but assured. At this point, the regulatory approval process represents the transaction’s main sticking point. While the European media landscape remains fairly competitive, there is a chance that British regulators will feel uneasy about the consolidation of two of its major cable providers. At the very least, requests for more information or recommendations that the terms of the transaction be modified could impede the deal’s timely closing.

Long-Term Prospects and Industry Outlook

The European cable and satellite markets are highly regulated in a way that might seem foreign to North American customers. Due to the relatively small market size of most of Europe’s individual countries, there may only be one or two major cable providers in a given territory. With its new-found heft, the combined company may be able to grab a larger share of several key European markets that have hitherto proven resistant to increased competition.

The company’s principal competitors will include Kabel Deutschland and British Sky Broadcasting Group. The former is a relatively staid company that operates primarily in its German home market. Known as BSkyB, the latter is a more dynamic outfit that may give a newly-expanded Liberty Global some serious headaches in peripheral British Isles markets like Scotland, Wales and Ireland. British Sky is known for its innovative business model and ruthlessly competitive pricing.  One of the reasons BSkyB can get away with their pricing is their small interest payments relative to Liberty.

In sum, the complex nature of this deal will create momentary share-price discrepancies that may provide keen-eyed investors with countless opportunities to earn nearly instantaneous returns of between 2 and 3 percent. For longer-term investors who may be uninterested in these short-term trades, it appears that Liberty Global Inc. (NASDAQ:LBTYA) will be well-positioned to create value for its customers and shareholders in Europe and the U.K. Interested investors are advised to purchase either company on temporary dips.

The article The Massive European Cable Deal originally appeared on and is written by Mike Thiessen.

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