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Liberty Global buys U.K. cable firm Virgin Media for $23.3B

In other 'major acquisition of the day' news, one U.S. media conglomerate struck a deal to buy the British cable media group for around $23.3bn.
Written by Zack Whittaker, Contributor

"Talk is cheap," except when it really isn't.

U.S. media conglomerate Liberty Global announced this evening that it would acquire Virgin Media [PDF] for $23.3 billion, a figure that will likely send shivers down the spine of media rival News Corporation chief executive Rupert Murdoch.

It comes just hours after Dell, with the help of Silver Lake and Microsoft, paid more than $24 million billion to pull out of the stock market.

Following the handshake on the deal, Liberty Global is already touting the deal as the creation of the "world's leading broadband communications company," covering 47 million homes and 25 million customers across 14 countries. 

Little will change for end-users and customers of Virgin Media, though—even the company name will remain the same. 

But there are finer points to the deal.

Shareholders in the British cable firm will receive cash and Liberty Global shares for an implied price of $47.87 in cash per Virgin Media share they hold, a premium of 24 percent on Virgin Media's closing price on February 4. 

Virgin Media shareholders will own around 36 percent of Liberty Global's outstanding shares, and hold just over one-quarter of the voting rights. The cash element to the closing price totals $5.9 billion and will be financed through debt financing and available liquidity.

The deal will go through by forming a new holding company. Liberty Global will redomicile from the U.S. state of Delaware to the U.K. by becoming a subsidiary of a new publicly limited holding company.

Both companies will remain headquartered in their respective countries, however.

Once the two companies are combined, the firms said they expect around $180 million in annual costs savings. 

But looking at the figures, the Liberty Global—Virgin Media deal has become one of the largest cable deals in history. Once the deal completes, between 75-80 percent of Liberty Global's revenue will come from European nations, including the U.K. and Germany.

The U.S. media giant has effectively fully globalized in one fell swoop, the company's relatively modest expansion in Europe in recent years notwithstanding.

Liberty Global president and chief executive Mike Fries said in prepared remarks:

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. But just as importantly, Virgin Media's market leading innovation and product expertise, particularly in mobile and B2B, will accelerate our own development of these business segments.

On Tuesday, there were rumblings that the U.S. media giant would make a bid for the U.K. broadband provider—which has around 4 million subscribers in the U.K. Rumblings were later confirmed by Liberty Global, speaking to the Financial Times of London.

Shares rose in Virgin Media ($VMED) by close to 18 percent during the day on the news of an impending buy-out. 

But here's the kicker for News Corp. and rivals: all eyes are on the U.K. fiber, broadband, and pay-TV market now. That's where the real fight will be, rather than on U.S. shores

Not only does it now have, through a U.K. fiber broadband provider, more customers than Murdoch majority-owned Sky Broadband by at least a half-million customer mark, but Virgin Media also has far faster networking speeds. Virgin Media now has the monopoly to hit the business market hard with super-fast Internet speeds; something that is still in demand in the U.K. market. 

And this isn't the first time Liberty Global chairman John Malone and News Corp.'s Rupert Murdoch have butted heads in the media space. 

The Liberty Global—Virgin Media also takes on News Corp. in the pay-TV space. Murdoch already owns British Sky Broadcasting (BSkyB), which dominates the U.K. pay-television market, but Virgin Media is catching up—and extremely quickly. BSkyB has around 11 million subscribers, but its expansion was hampered after News Corp.'s newspaper business was caught up in the U.K. phone hacking scandal.

Between 2004-2006, the two firms fought over satellite television provider DirectTV, resulting in the purchase of a controlling stake from News Corp. in a part-cash, part-equity deal worth around $11 billion, according to The New York Times.

With Dell going private and the Liberty Global—Virgin Media going through, it really hasn't been a bad day for U.S. and European business.

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