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Speculation about U.S.-based media services company Liberty Global (NASDAQ: LBTYA  ) possibly gobbling up U.K. entertainment and communications company Virgin Media (UNKNOWN: VMED.DL  ) have been strengthened by this Virgin Media statement: "Virgin Media confirms that it is in discussions with Liberty Global, a leading international cable company, concerning a possible transaction."

If successful, the deal would pit Liberty Global chairman John Malone in a mano a mano¬†fight against the chairman and CEO of News Corp. (NASDAQ: FOXA  ) , Rupert Murdoch. News Corp's BSkyB is the current pay TV leader in the U.K. market. Virgin Media is No. 2.

Malone once owned an 18% share in News Corp.; only Murdoch had a larger stake. Malone eventually sold his interest back to News Corp. in return for that company's interest in DIRECTV.

Malone once said he "would love" to have an operation in the U.K. He decided, however, not to jump into any bidding fray for BSkyB after News Corp.'s phone hacking scandal in 2011 forced it to drop its bid for full control of the TV company. Malone said then: "It used to be a given, a saying in the industry: don't ever bid against Rupert Murdoch for anything Rupert wants, because if you win, you lose. You will have paid way too much."

The market has gone long on the Virgin Media given this potential arrangement. Its share price has climbed over 16% since the company affirmed the talks, and that's after almost doubling since last May.

Liberty Global, on the other hand, has dropped almost 6% since Monday's high. Perhaps that's a sign of nervousness over the company's high leverage: 4.7 times debt/EBITDA. Instead of paying down some of that debt, it bought back $1 billion of its stock in 2012, bringing it to $5 billion in stock repurchases since 2007.

Liberty Global has a market capitalization of $17.8 billion and a debt of $28.8 billion. Virgin Media's current market cap is around $12.1 billion, and it has $9.5 billion of debt.

Virgin Media stockholders may be smiling right now, but if the deal doesn't hold, they should be ready for a quick drop.

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