The bid for Virgin Media last week by private equity group Carlyle is almost certainly triggered by tired investors, who no longer want to hang on to what have recently become volatile assets. These same investors have waited years to get a benefit from the component companies NTL and Telewest, which were both devastated in a debt for equity swaps almost four years ago after a decade of ailing returns.
It now appears that those bankers have panicked at the first major hurdle as the merged operation, by far the largest cable operator in the UK, has embarked on a bitter struggle for BSkyB channel rights. This struggle has it roots in the personalities of Sir Richard Branson, and his hatred of the Murdoch family who control Sky and News Corp.
So far these investors have attracted one low-ball bid from the poorest payer of the private equity world, in Carlyle which traditionally underbids other braver PE players. Now the press says that those same bankers have approached Liberty Media and Comcast to bring the price up.
These last names seem to us unlikely, as Comcast has never made deals outside of the US and Liberty Media has spent the past four years extricating itself from its European cable owning group Liberty Global. Liberty might bid with a private equity group and Liberty Global, but the most likely reason for these names being leaked is to drive the price higher.
The next step surely is for other Private Equity bidder to emerge, coaxed by Branson, for instance the consortia which came after it last year including Providence Equity Partners, Bain Capital, the Blackstone Group, Kohlberg Kravis Roberts and Cinven, in a deal that valued he company prior to the takeover of Virgin Mobile higher than the current bid.
It would be a shame if any deal is done which virtually GIVES away Virgin Media, as the current price of between $22 and $23 billion, including debt, is certainly too low.
The Sky channels are indeed strong assets, and Virgin is finding the acquisition of new customers less easy due to the lack of them at a time when its shiny new brand should be attracting them in droves. But other services live without the Sky Channels, and its film channels are over-rated and have rising competition and besides, the UK regulator and competition regulator, the European Union with rules on dominance, and the courts themselves, between them will see to it that Virgin gets a fair deal on the Sky channels, if it is allowed to pursue it that far.
Onlookers reason that private equity should get it cheap because they are buying the Albatross from around the bankers’ neck. They expect the new owner to be able kick out Branson, change the company name (yet again), and go cap in hand to Sky to complete a channel deal. If that happens, then Branson will complain long and loud to regulators and they are sure to come down even more heavily on BSkyB.
Branson should be talking to private equity groups himself, but some with more vision. They may take on this battle with Sky and since they own many of the European cable players, Branson may have a strong story suggesting a pan European cable operator which can make use of the Virgin name. This could be a quadruple play developed with a pan-European MVNO, in an echo of the Sprint Cable Pilot consortium in the US