Branson confident NTL deal will happen

Sir Richard Branson said on Thursday that he was confident that NTL would make a higher offer for Virgin Mobile after the mobile operator’s board rejected an £817m bid on Wednesday night, insisting it “materially undervalued” the company.

Sir Richard, Virgin Mobile’s majority shareholder, told BBC Radio 4’s Today programme that he would be “very surprised” if the deal collapsed and said that NTL could raise its offer by as much as £25m.

“My gut feeling is NTL will come up and meet whatever figure it is they are after, if they feel the forecasts are correct, or some sort of compromise will be reached,” he said, adding that the two parties were unlikely to fall out over the matter and were close to a deal.

“I be very surprised if it doesn’t get done. If I was a betting man I would say it would be over 90 per cent [chance], though obviously I may be wrong.”

The board’s rejection, which was made after consulting with Virgin Mobile’s leading independent shareholders, is likely to be seen as a clear signal to the City from Charles Gurassa, chairman of Virgin Mobile, that the board is determined to protect the interests of minority shareholders.

Sir Richard, whose Virgin Group controls just under 72 per cent of the mobile operator, has already given NTL his verbal backing for the deal, which currently values the company at 323p a share.

Last night’s decision follows several days of deliberations between five of the six non-
executive directors and Morgan Stanley, the company’s advisers, over valuation. Gordon McCallum, the non-executive appointed by Virgin Group, excluded himself from the deliberations to avoid a conflict of interest.

The board also said it had consulted with its “major independent” shareholders before reaching its decision. The two biggest minority shareholders are fund managers Fidelity and Morley, each with about 6 per cent.

The rejection is likely to be discussed at an NTL board meeting in New York on Thursday. Analysts previously said they believed NTL would have to pay more to secure the backing of Virgin Mobile’s board. The approach, made on Monday, is at a small premium to last Friday’s closing price of 311p but below last night’s closing price of 345½p.

Virgin Mobile’s shares have benefited from the recent wave of merger activity in the sector.

However, analysts say NTL’s bid appears to value Virgin Mobile fairly compared with other recent deals in the sector, putting it on a price/earnings multiple for the current year of 15 times.

Because it is a “virtual” operator, piggy-backing on T-Mobile’s UK network, it has low capital expenditure so unlike most telecoms companies does not encourage the usual valuation at the earnings before interest tax, depreciation and amortisation level.

In the other recent mobile deal in the UK, Spain’s Telefónica agreed to pay a multiple of 20 times for O2. But analysts point out that the Madrid-based operator could offer such a full price because under Spanish law, goodwill on foreign acquisitions is tax-deductible. “I think Virgin Mobile’s minority shareholders would be hard pushed to use the O2 deal to justify a higher price,” said one analyst.