The deal will place Liberty’s major stakeholder John Malone against his former ally and foe Rupert Murdoch, who controls BSkyB.
Although analysts believe a Liberty owned Virgin Media will be more of a threat to smaller competitors BT and TalkTalk in the triple play market.
Liberty said the acquisition consisted of a $16 billion equity value and an enterprise value of about $23.3 billion.
This is an 8.8 times premium on Virgin Media’s 2012 operating cash flow and a 7 times premium on the company’s 2013 estimated cash flow.
The deal is equivalent to $47.87 per share, a 24% premium on Virgin Media’s closing price on February 4.
“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,” said Mike Fries, president and CEO of Liberty Global.
Upon full integration the acquisition is expected to yield operating and CAPEX synergies of approximately $180 million per year for Liberty.
Fries said that Virgin’s expertise in mobile and B2B would accelerate Liberty’s development of these business segments. In the cable group’s other markets business customers account for only 6% of sales compared to Virgin’s 15%.
Market watchers suggest that taking advantage of Virgin Media’s tax losses and low interest rates could be a motivation for the deal.
As part of the acquisition Liberty Global will redomicile from Delaware to the UK by becoming a subsidiary of a new UK plc holding company. One Virgin Media director will be named a director on Liberty Global’s board.
Once the acquisition has closed approximately 80% of Liberty Global’s revenue will come from five European countries; the UK, Germany, Belgium, Switzerland and the Netherlands; and it will have a global customer base of 25 million.
Liberty said it may seek a European listing in the future.
The transaction is subject to shareholder and regulatory approval and is expected to close in the second quarter of 2013.
LionTree Advisors and Credit Suisse acted as financial advisors to Liberty and Shearman & Sterling and Ropes & Gray served as legal counsel. Goldman Sachs & Co. and JP Morgan acted as financial advisors and Fried Frank and Milbank served as legal advisors.
