Sky bids big for Virgin Media channels

British Sky Broadcasting has made what appears to be a knock-out bid for a package of seven digital television channels owned by Virgin Media, offering about 60 per cent higher than its nearest challenger, people involved in the auction said on Thursday.

None of the other bidders with offers on the table, including Channel 4, Time Warner, RTL and NBC Universal, have bid much more than £100m – a level well short of the £160m approach from BSkyB.

The BSkyB bid has created a dilemma for Virgin Media, a company with an avowed intent to reduce its net debt of £5.9bn.

Although no other bidder is close, people with knowledge of the process said, Virgin Media would think twice before selling to the satellite broadcaster, which is its fiercest rival in the distribution of programming.

Ironically, when the two companies were locked in a fierce legal dispute over how much each would pay the other for hosting their respective “own-brand” channels, BSkyB argued in court pleadings that the content of VMTV, which now consists of Living, Living Two, Bravo, Bravo Two, Challenge, Challenge Jackpot and Virgin One, was almost worthless to their subscribers.

The fact that they are now willing to pay more than analysts believe the assets are worth – recent estimates suggest a value of £100m to £130m – prompted one media consultant with knowledge of the company to question BSkyB’s tactics.

“There has been speculation that Sky wants to make sure that whoever buys these channels – especially if it is a direct rival such as Channel 4 or [RTL’s] Five – has to pay as much as possible,” he said.

But Paul Richards, an analyst at Numis, said: “It’s a matter of what Sky can bring to the process. When they bought Amstrad [in 2007], people raised eyebrows about the price but, from our perspective, that now looks like a very, very good deal. If you bolt those VMTV channels into the BSkyB infrastructure, you could see a significant uplift.”

None of the companies involved was willing to comment on the process.

Late on Wednesday, Virgin Media announced it would price a $650m (£408m) offering of new debt before the end of the week, allowing the cable operator to pay off bonds due to mature in the next two years. The issue is likely to close within a week, people familiar with the company said.

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