Telecom Lead America: Liberty Global will buy Virgin Media in a deal valued at approximately $23.3 billion.
The merger between Liberty Global and Virgin Media will create the world’s leading broadband communications company, covering 47 million homes and serving 25 million customers across 14 countries.
Reuters reported that the buyout will enable John Malone-promoted Liberty Global to compete with old rival Rupert Murdoch in the UK market.
At present, Virgin Media, the second-biggest pay-TV provider in Britain, is behind Murdoch’s satellite group BSkyB.
The $23 billion deal would give Liberty entry to one of Europe’s biggest and most competitive telecom markets, allowing it to apply lessons learned as a pay-TV and broadband provider in 11 other European countries.
It will also put Malone’s Liberty in a position to challenge Murdoch as cable groups across the region start to assert their authority over traditional telecoms firms with the offer of super-fast broadband and pay-television.
The combined company will be focused on the strongest and most strategic markets in Europe, with the scale to be at the forefront of technological change for customers.
After the deal, roughly 80 percent of Liberty Global’s revenue will come from five countries – the UK, Germany, Belgium, Switzerland and the Netherlands.
Virgin Media has reported 2.7 percent increase in 2012 revenue to £4.101 billion. In Q4 2012, Virgin Media’s revenue increased 1.6 percent to £1.040 billion.
The combined company generated $16.8 billion of revenue and $7.5 billion of operating cash flow in 2012.
Adrian Drury, principal analyst at Ovum, says this could be the largest shake-up in the UK telecoms and media sector since the merger of the T-Mobile and Orange UK mobile network operators in 2010.
While Liberty’s play for Virgin is likely to be driven by its long term vision for the value a foothold in the UK will have a pan European triple-play business, and the competitive need to fight News Corp at this scale, in the near term it will make the UK the ring for a straight slug fest between two global pay-TV heavyweights, John Malone and Rupert Murdoch, as they battle for UK fixed broadband, fixed voice and pay-TV subscribers. Depending on how Malone might chose to leverage the Virgin Mobile asset, it may also spill over in consumer mobile services.
Ovum says Malone will bring the operational smarts from cable operations in 13 markets, multi-territory leverage with the major studios and sports federations, plus its recently launched Horizon next generation pay-TV and multi-screen platform, now rolling out across its European operations. But it will be facing off against a jewel in the Murdoch empire.
BSkyB, by any measurement is one of the best-run pay-TV operations on the planet, with a strong technology platform strategy, some powerful content rights, including exclusive rights to the entire HBO catalogue, control of the Premiership coverage wholesale market, and exclusivity on the output of all of the majors in the First Subscription Pay-TV Window.
“Plus also note that the UK is a must win market for two major disruptive SVOD players, Amazon’s Lovefilm and Netflix. If Malone closes the deal, this will be a very interesting competition to watch and real test for the Liberty vision of the future of cable TV and internet services. Also expect that there would be some collateral damage, potentially other UK telcos trying to solve their triple play pay-TV challenge, such as Talk Talk and BT,” Drury said.
Mike Fries, president and CEO of Liberty Global, said Virgin Media will add significant scale and a first-class management team in Europe’s largest and most dynamic media and communications market.
Liberty Global expects the strategic acquisitions expect operating and Capex synergies of approximately $180 million per year upon full integration.
