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Sir Richard Branson will dip into his own pockets to break the deadlock over the sale of Virgin Mobile, his majority-owned mobile telephone group, to realise his goal of extending the Virgin brand to a television company.
NTL, the cable operator, on Friday night raised the terms of its earlier indicative offer for Virgin Mobile from 323p a share to around 360p in cash or an equivalent sum in shares, valuing the mobile phone group at £930m.
However, in order to bridge the gap between what Virgin Mobile’s institutional shareholders are demanding and what NTL is prepared to offer, Sir Richard, who owns 71.5 per cent of the mobile group, has indicated that he will make up the difference to lift the cash offer available to minorities to 372p, a move likely to cost him up to £9m.
The Virgin Mobile board was last night debating whether to accept the indicative offer and open its books to NTL, allowing the cable group to conduct due diligence.
If a deal is concluded successfully, Virgin Group is expected to enter a straightforward brand licensing deal with NTL, giving it the use of the Virgin name in return for around 0.25 per cent of annual revenues.
NTL’s revised offer comes as bankers on both sides and Charles Gurassa, Virgin Mobile chairman, have been discussing a price acceptable to minority shareholders.
The negotiations have been complicated by comments made by Sir Richard after the initial offer was leaked last month. Sir Richard’s remarks about the deal in a radio interview prompted the Takeover Panel to demand clarification from both sides.
The deal would allow NTL, which is already in the process of merging with Telewest, its only UK rival, to offer subscribers a mobile phone service as well as pay-TV, internet access and a traditional telephone service.
The so-called “quadruple play” strategy comes at a time when media and communications companies are moving into each other’s territories. British Sky Broadcasting, the satellite television company, has bought Easynet, a broadband provider, while ITV, the commercial terrestrial broadcaster, acquired Friends Reunited, the website that allows school friends to get in touch.
The share component of the deal has not changed from the original offer of 0.09298 NTL shares for each Virgin Mobile share. But NTL’s share price has increased since its interest first became public before Christmas, raising the value of the paper offering.
Sir Richard’s Virgin Group will take NTL shares for 80-90 per cent of its 72 per cent stake in the mobile operator and the rest in cash. If Sir Richard takes 20 per cent of his stake in cash he will get £186m before passing on just under £9m to the minority shareholders.
The balance in shares will leave Virgin Group with about 13 per cent in an enlarged NTL; that stake would rise to about 14.5 per cent if Sir Richard opted to take just 10 per cent in cash.
The revised indicative offer comes before Stephen Burch, NTL’s new chief executive, starts on Monday.
NTL is advised by Goldman Sachs and Virgin Mobile by Morgan Stanley.