NTL May Offer More to Virgin

ntl group ltd. (Nasdaq: NTLI) is set to increase the value of its bid for Virgin Mobile Telecoms Ltd. by more than 10 percent to 360 pence per share, or about £911 million (US$1.58 billion), after its initial offer was rejected, according to reports in the British media. (See NTL Eyes Mobile Buy.)

NTL's initial offer was unanimously rejected by the Virgin Mobile board, which stated in December that the initial offer of 0.09298 NTL shares, or the cash equivalent of 323 pence, for each Virgin Mobile share, "materially undervalues Virgin Mobile."

Now NTL, which had its merger with fellow cable operator Telewest Global Inc. (Nasdaq: TWSTY) cleared by the U.K.'s Office of Fair Trading last week, is set to increase its bid, according to unnamed sources cited by The Times newspaper. (See NTL & Telewest: Together at Last!.)

Adding Virgin to the mix would allow the expanded carrier (NTL + Telewest) to offer its 5 million-plus customers mobile services in addition to its existing TV/video, broadband, and fixed telephony, creating a so-called quadruple play service package -- or fourplay, as we like to call it.

"A potential deal with Virgin Mobile would bolster the company's bundled offerings, bring a new brand and a prominent equity sponsor," state analysts at UBS Research in a research note issued today. "In our view, NTL is well-positioned in 2006 with a bolstered management team, prospects for more solid execution and material future synergy realization." (See NTL Names New CEO.)

But the analysts note that an offer of 360 pence may also be rejected by Virgin Mobile. "The original offer was made when NTL shares traded at $60.10, and equated to .09298 NTL shares per Virgin Mobile share. At Friday's closing NTL share price of $68.08, that same ratio would equate to roughly 366 pence per Virgin Mobile share," explains the UBS note.

NTL's share price is down 17 cents, about a quarter of a percent, today at $67.91, while Virgin Mobile's stock closed on the London Stock Exchange at 376 pence, down just 1 pence from last Friday.

Virgin Mobile is 72 percent owned by Sir Richard Branson, who supports the takeover, and 28 percent publicly traded. Branson would own about 15 percent of the combined company if the deal goes through.

If NTL is successful, it would put increasing pressure on the U.K.'s other major service providers to step up their bundled offers. But NTL wouldn't be taking the lead: Orange (NYSE: FTE) has already pitched its flag by announcing the combination of its Orange SA (London/Paris: OGE) mobile service with its Wanadoo SA broadband service under a single brand, Orange. (See Eurobites: Big Guns Fire Salvos.)

Incumbent telco BT Group plc (NYSE: BT; London: BTA) doesn't have its own mobile operations, though it has a partnership with Vodafone Group plc (NYSE: VOD) to provide the wide area mobile coverage for its fixed/mobile convergence service, Fusion. But that, at present, has only a few thousand users. (See BT Goes Blue.)

BT, of course, used to have a mobile operator, but spun it off as Telefónica Europe plc (O2) , the wireless carrier with operations in the U.K., Germany, and Ireland. O2, though, is now about to become part of the Telefónica SA (NYSE: TEF) empire, which made an unexpected move to buy the operator last November. [Ed note: So, nobody expected the Spanish acquisition…]

The Spanish giant today announced it has already received acceptances covering 62.72 percent of O2 stock, and extended the O2 shares tender deadline by eight days to January 20. (See Telefónica Swoops In on O2.)

But does it plan to move into the British broadband market, too? Such a move would make sense, says Heavy Reading senior analyst Graham Finnie. "Carriers everywhere are looking at offering mobile and broadband together. It would make sense" for Telefónica to look at doing broadband, too, "as that's the direction the world's going in."

If it did take the broadband plunge it would need to either buy a DSL service provider or join the growing list of companies installing their own equipment in BT's local exchanges and unbundling the local loop. (See Unbundling Heats Up in UK and Murdoch's Sky Takes on BT.)

A Telefónica spokesman says nothing has been announced for the U.K. market but that a combination is possible in Germany, where Telefónica already has broadband operations in the form of Telefónica Deutschland GmbH .

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 4:10:27 AM
re: NTL May Offer More to Virgin So NTL offered $1.4bn, now it could offer $1.6bn, and even that might be rejected. AND -- Virgin Mobile doesn't even have its own mobilke network! It rides on T-Mobile's infrastructure, though it has all its own customer relationship systems, so it 'owns the customer' as such.
But how much value can NTL place on owning that particular relationship? $1.6 billion values each Virgin Mobile customer at $385...
materialgirl 12/5/2012 | 4:10:12 AM
re: NTL May Offer More to Virgin Ironically, the value of a stand-alone wireless customer may be falling as convergence means getting connected where-ever and when-ever you are. Instead of an access technology, users become an account. In this case, it becomes a situation of 1+1=survive, while 1+0=0.

What I wonder about is why Branson is at odds with the other shareholders.
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