Virgin Media Confirms Acquisition Talks

If Liberty Global acquires Virgin Media, this deal will most definitely have a winner and a loser

Allan C. Nichols, CFA 5 February, 2013 | 4:54PM
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UK cable operator Virgin Media (VMED) confirmed this morning that it was in talks with Liberty Global (LBTYA) to be acquired. We think such a deal would be great for Virgin Media shareholders as the stock was already trading near our fair value estimate before today's double-digit price jump.

Virgin Media shareholders may want to consider locking in some profits

Since the deal may not occur, Virgin Media shareholders may want to consider locking in some profits at this point. Meanwhile, we think such a deal would not be so good for Liberty Global's shareholders and we might reduce our fair value estimate if the deal goes through.

With the bid premium in London trading, Virgin Media trades at a higher multiple than Liberty Global, despite the UK being a much more competitive market. Case in point: competitor British Sky Broadcasting Group (BSY) has more than twice as many customers as Virgin Media. Additionally, the pay television market is growing slowly, unlike Liberty Global's recent acquisitions in Germany, a market that is growing much faster.

Liberty Global already trades above our fair value estimate and we think acquiring the much slower growing Virgin Media will highlight the fact that its multiple is too high. We think Liberty Global is running out of acquisition targets and thinks it needs to continue to expand to push up its stock price. It seems that Liberty Global's cash is burning a hole in its pocket. While we have generally applauded the firm's ability to make acquisitions at good prices, we disagree with this one.

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About Author

Allan C. Nichols, CFA  is a senior stock analyst and international investing specialist with Morningstar.