Liberty Global Acquires Virgin Media for $23.3 Billion

LONDON -- After acknowledging press speculation earlier this week that it was in talks concerning "a possible transaction," Virgin Media  (LSE: VMED  ) (NASDAQ: VMED  ) this morning announced that Liberty Global  (NASDAQ: LBTYA  ) is to acquire the company, creating the world's leading broadband communications company.

In a stock and cash merger valued at approximately $23.3 billion, Virgin Media shareholders will receive $17.50 in cash, 0.2582 Liberty Global Series A shares, and 0.1928 Liberty Global Series C shares for each share they own -- a price of around $47.87 per Virgin Media share. The cash component of the equity purchase price of around $5.9 billion will be funded largely through a combination of debt financing and available liquidity of both Liberty Global and Virgin Media. Excluding debt, the cash and stock part of the deal comes in at around $16 billion.

Virgin Media CEO Neil Berkett commented: 

Over the past six years, Virgin Media has transformed the digital experience of millions of customers, catalyzed a deep-rooted change in the UK's digital landscape and delivered impressive growth and returns for our shareholders. I'm confident that this deal will help us to build on this legacy. Virgin Media and Liberty Global have a shared ambition, focus on operational excellence and commitment to driving shareholder value. The combined company will be able to grow faster and deliver enhanced returns by capitalising on the exciting opportunities that the digital revolution presents, both in the UK and across Europe.

The union will see Liberty Global incorporate Virgin's customer base to cover a whopping 24 million customers in 14 countries, covering 47 million homes. The combined company will be focused on the strongest and most strategic markets in Europe -- about 80% of Liberty Global's revenue will come from the U.K., Germany, Belgium, Switzerland, and the Netherlands.

Mike Fries, president and CEO of Liberty Global, added: 

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.

Like all of our strategic acquisitions we expect this combination to yield meaningful operating and capex synergies of approximately $180 million per year upon full integration... Virgin Media will be complementary to our own organic revenue and OCF growth profile, while providing attractive free cash flow enhancement to our shareholders. As a result, we intend to increase our commitment to share buybacks going forward with an initial target of approximately $3.5 billion over a two-year period upon closing.

Further benefits of the combined company include complementary strengths across product suites, with both mobility and B2B expertise offering additional growth potential in key markets; significant potential to monetize its customer base; a substantial synergy opportunity, driven by scale advantages across core functional areas; accretive to free cash flow, with combined track record of exceptional free cash flow generation; and increased commitment to shareholder returns, leveraging the financial strength of the combined company, which generated $16.8 billion of revenue and $7.5 billion of operating cash flow in 2012.

Q4 and FY results
Understandably, today's confirmation of the takeover overshadowed Virgin Media's fourth-quarter and full-year results, which saw 2012 deliver a record year of cable customer growth.

Revenue increased 2.7% to £4.10bn for the year; up 1.6% to £1.04bn for the quarter. Operating cash flow lifted 4% to £1.65bn for the year; up 4.4% to £442m for the quarter. 

There were multiple sources of high-quality revenue growth, with cable revenue rising 3% for the year, and up 3.8% in the quarter, while TiVo customers increased 896,900 in the year (187,300 in the quarter), paying TV customers lifted 210,000 in the year (59,900 in the quarter), and superfast broadband customers (30MB and above) increased 1.5 million in the year (419,400 in the quarter).

Virgin Media CEO Neil Berkett commented: "Mainstream demand for superfast broadband and TiVo has led to lower churn and a strong increase in new subscribers. Combined with growth in our business division, we have delivered solid financial progress."

Top growth opportunity
Virgin Media has proved itself to be a top growth performer over the last few years, and today's acquisition sees shareholders receive a 24% premium to the company's closing price on Monday -- on top of whatever gains they had made depending on when they bought their shares.

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