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Liberty Global to Acquire Virgin Media, Creating World's Leading Broadband Firm

Posted by Barry Silverstein on February 6, 2013 06:49 PM

In a deal that looks to dramatically change the complexion of the media business, U.S.-based Liberty Global will buy the U.K.'s Virgin Media to create a broadband company that will supplant Comcast as the world's biggest cable operator.

The $23 billion deal, if approved, will give Liberty Global a strong foothold in the UK. In an intriguing twist, it will also pit Liberty Global's John Malone against his former partner, the media mogul Rupert Murdoch, who operates British Sky Broadcasting (widely known as "BSkyB"). BSkyB has been a bright spot in an otherwise difficult time or Murdoch.

"This deal is good news for the company, its customers and our people," commented another media titan: Sir Richard Branson, the billionaire entrepreneur who founded the Virgin empire. "Together, Liberty Global and Virgin Media are in a great position to shake up the industry and bring the full power of digital technology to UK consumers."

The largest media acquisition of its kind since 2007 "will make the U.K. 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," according to Adrian Drury, principal analyst at the global consulting firm Ovum.

Drury added that while Malone "will bring the operational smarts from cable operations in 13 markets" to the acquisition, he will be facing off "against a jewel in the Murdoch empire" because BSkyB is "one of the best run pay-TV operations on the planet."

Liberty Global, however, is emphasizing "co-opetition," not competition, with BSkyB. Liberty Global CEO Mike Fries said that Virgin Media and BSkyB already share content. "We do not see any reason why that would change or any reason why Virgin Media needs to compete with Sky for that premium content," Fries said.

Until 2008, Liberty Media, a separate division of Liberty Global, owned a 16 percent stake in Rupert Murdoch's News Corp. — a large enough holding to have allowed Malone to challenge Murdoch for control of the company. But instead, Liberty Media exchanged its stake for News Corp.'s 41 percent share of DirecTV, a satellite television operator.

The new combined company will cover 47 million homes and serve over 25 million customers in 14 countries, and according to Virgin's press statement, "its focus will be on the strongest and most strategic markets in Europe, with the scale to be at the forefront of technological change for customers."

The acquisition would give the combined Liberty Global-Virgin Media a bigger subscriber footprint than Comcast, America's cable behemoth, and make it the largest cable operator in nine of the dozen European countries, according to Liberty Global's investor presentation.

Liberty Global sees two big opportunities for growth:

1. Virgin Media has more mobile cross-selling expertise, with 14 percent of its revenue coming from mobile, vs. 2 percent of Liberty Global's revenue from mobile

2. Virgin Media is more entrenched in the pan European business-to-business (B2B) space, with 16 percent of its revenue coming from B2B, vs. 6 percent of Liberty Global's revenue from B2B.

“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,” noted Virgin Media CEO Neil Berkett.

“Virgin Media and Liberty Global have a shared ambition, focus on operational excellence and commitment to driving shareholder value," he added. "The combined company will be able to grow faster and deliver enhanced returns by capitalizing on the exciting opportunities that the digital revolution presents, both in the UK and across Europe.”

The fate of the Virgin Media brand was not immediately clear. Reportedly, Liberty Global will retain the Virgin Media brand name, but that was not confirmed Wednesday.

Virgin Media is known in the U.K. for its broadband, TV and phone products, and in the U.S. for its cellular division, Virgin Mobile. As a superbrand, the name Virgin has broad awareness, and is linked inextricably with Branson. Only recently, a cheeky campaign for Virgin Media poked fun at Branson with Usain Bolt as a celebrity spokesperson to promote the division's lightning fast broadband.

The acquisition is likely to cause upsets in other ways as well. "If Malone closes the deal, this will be a very interesting competition to watch and a real test for the Liberty vision of the future of cable TV and internet services," said Ovum's Adrian Drury. "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."

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