NTL on Monday shook up the rapidly converging telecommunications and media industries with a £817m bid for Virgin Mobile, a move that would intensify competition with main rivals including British Sky Broadcasting and BT.
The UK cable operator’s takeover approach is being supported by Sir Richard Branson, who controls 72 per cent of the UK mobile operator. NTL wants to see the enlarged group assume the Virgin brand for which it needs Sir Richard’s approval.
Sir Richard has indicated he will accept a stake of 12-15 per cent, making him the largest shareholder in the group. He is also understood to be demanding a seat on the board.
Meanwhile, on Monday it remained unclear whether Virgin Mobile’s board would back the bid.
“In considering its response, the board of Virgin Mobile will be mindful of its duty to maximise value for all shareholders,” the company said.
NTL said it was offering 323p a share, valuing the mobile operator at £817m, as a mixture of cash and shares, but bankers warned that might not be enough to sweeten the deal for Virgin Mobile’s minority shareholders.
Shares in Virgin Mobile closed at 311p on Friday. They have almost doubled in value over the past year, buoyed by a wave of M&A activity in the sector.
■Deal would create the UK’s first ‘quadruple play’ offering mobile telephony, fixed line telephony, pay-television and internet
■NTL/Telewest has a customer base of 5m residential subscribers including 2.5m broadband subscribers and 3.3m pay television subscribers
■Virgin Mobile has over 5m subscribers
■NTL/Telewest market cap £3.8bn
■Virgin Mobile market cap £800m
The acquisition by NTL, which is awaiting regulatory clearance for its merger with rival Telewest, would see the cable operator add mobile operations to its offering of fixed-line telephony, TV and broadband.
This so-called quadruple-play offering, which is being rolled out by various telecom operators elsewhere in Europe and the US, is designed to increase customer loyalty and provide an attractive distribution model for content.
The deal would help the combined cable group increase its income at a time when revenues from fixed-line telephony have been overtaken by mobile usage. The Virgin brand is seen as a key part of the deal because of the cable industry’s poor track record in customer service.
The approach to Virgin Mobile was made on Friday after NTL won the backing of T-Mobile for its bid. The support of the Deutsche Telekom’s UK mobile subsidiary is crucial because it allows Virgin Mobile to piggy-back on its network.
Additional reporting by Andrew Edgecliffe-Johnson