NTL Takes Virgin
After a drawn-out negotiating process -- the price tag was a sticking point -- NTL has reached an agreement whereby Virgin's minority shareholders can take, for each of their shares, either 372 pence in cash, 0.23245 NTL shares valued at 389 pence each, or a mixture of cash and shares that works out to 378 pence per share. That latter option is the one taken by Virgin majority shareholder Richard Branson to push the deal through. (See NTL Poised to Acquire Virgin Mobile and Source: NTL Sweetens Virgin Offer.)
The acquisition will make NTL, which recently completed its merger with rival cable operator Telewest Global Inc. (Nasdaq: TWSTY), the first U.K. service provider to offer TV, Internet, fixed-line, and mobile services as carriers of all stripes look towards fixed/mobile convergence.
In a prepared statement, NTL executive chairman James Mooney said, "offering a quad-play underpins true media convergence, and offering high quality communications services will, we believe, appeal to existing subscribers of the enlarged business as well as new customers." (See NTL Eyes Mobile Buy and NTL, Telewest Complete Merger.)
Ovum Ltd. analyst Mike Cansfield writes in a research note that it makes sense for NTL to add mobile to the mix, but making it work as part of a converged offering "is easier said than done." As an MVNO (mobile virtual network operator), Virgin doesn't own its network but relies on T-Mobile (UK) to carry its services. "Whilst it is relatively easy to bundle these services together," writes Cansfield, "it is much harder to integrate them, as to do so requires network intervention and it is not clear why T-Mobile would want to be so accommodating."
Add to that the task of integrating Telewest, and Cansfield says that, while the deal looks good on paper, it's also a major task, especially given the cable companies' widespread reputations for poor customer service.
Virgin's good reputation in that area is a key driver behind the purchase, and, according to NTL's statement, it has entered a 30-year licensing agreement with Branson, worth around £9 million ($15.76 million) per year, to use the Virgin brand.
Cansfield writes, "It would seem wiser to us to adopt the Virgin brand once these difficulties are sorted, rather than before," and NTL seems to be taking this approach, stating it will take on the Virgin name after 12 months.
Shares in Virgin Mobile were down 3 pence (0.78%) to 384 pence in midday trading on the London Stock Exchange . NTL was up 1 cent (0.03%) to $29.12 in pre-market trading on the Nasdaq .
— Nicole Willing, Reporter, Light Reading