Commercial awareness: think like a professional about... cable tie-up

Our banker, lawyer, accountant and consultant report on telecoms giant Liberty Global's takeover of Virgin Media

Liberty Global, a leading international provider of internet, television and telephone services, has announced that it is to acquire UK telecoms company Virgin Media for $23.3 billion (£15 billion) in cash and shares. This sum represents a valuation of Virgin Media at $47.87 per share and an equity value for the organisation of $16 billion, giving the sellers a premium of around 24 per cent on Virgin Media's closing price on 4 February, when confirmation of an agreement was yet to hit the market. Virgin Group founder Sir Richard Branson still has a 3 per cent stake in Virgin Media, which uses his Virgin brand under a 30-year licensing agreement, and will make over $300 million from the sale.

The move will turn Liberty Global into Europe's largest broadband businesses and give it a significant presence in the UK. The corporate is strong in a number of European countries and is the largest cable operator in Austria, Belgium, the Czech Republic, Hungary, Poland, Slovakia and Switzerland, but until now has not been able to make inroads in Britain.

Virgin Media, constructed over the years through a series of mergers, has struggled since the onset of the economic slowdown. In its 2011 results, however, it reported a small profit for the first time in five years. Liberty Global will be hoping to make the most of the synergies between the two media organisations to foster continued growth in the Virgin Media business it is inheriting.

The deal is subject to regulatory and shareholder approval, but is expected to reach completion by early summer 2013. The process will see Virgin Media's chief executive Neil Birkett step down, though the Virgin Media brand will be retained. Liberty Global has reported that it will move its corporate registration from US state Delaware to the UK to reflect the fact that the deal means that 80 per cent of its revenues will now come from Europe, and may consider listing on a European stock exchange.

Liberty Global is expected to continue to develop Virgin Media's strong cable infrastructure in the UK. The newly enlarged corporate will go head to head in this country with current pay-to-view television leader Sky, and is expected to use its newly strong position to attempt to take some of Sky's share of the market.

Thinking like a banker

Share and share alike

It's common for payment to be made on takeover deals, as here, in both cash and shares. Virgin Media shareholders will receive $17.50 in cash, 0.2582 Liberty Global Series A shares and 0.1928 Liberty Global Series C shares per Virgin Media share they hold (a large corporate like Liberty Global will have a range of shares in circulation carrying different rights and with different prices). Paying in shares makes sense if the buyer thinks its shares are overvalued by the market, and reduces the amount of money they have to borrow for the deal. It can also be favourable tax-wise, and makes the sellers bear some of the risk of the merger not being successful.

Thinking like a lawyer

Unaware in Delaware

Delaware is the second-smallest US state, yet over half of US public companies are legally registered here, and 63 per cent of those listed in the Fortune 500 revenue rankings. Why? Because registering in Delaware means a company can take advantage of the state's corporation-friendly regulations. It's very easy to set up or move a company to Delaware and, once you do, corporate taxes are low and there's no legal obligation to publicly declare information such as who your company's directors are or file accounts, which is compulsory in many jurisdictions, including England and Wales.

Thinking like an accountant

Unaware in Delaware

Delaware is the second-smallest US state, yet over half of US public companies are legally registered here, and 63 per cent of those listed in the Fortune 500 revenue rankings. Why? Because registering in Delaware means a company can take advantage of the state's corporation-friendly regulations. It's very easy to set up or move a company to Delaware and, once you do, corporate taxes are low and there's no legal obligation to publicly declare information such as who your company's directors are or file accounts, which is compulsory in many jurisdictions, including England and Wales.

Thinking like a consultant

Unaware in Delaware

Delaware is the second-smallest US state, yet over half of US public companies are legally registered here, and 63 per cent of those listed in the Fortune 500 revenue rankings. Why? Because registering in Delaware means a company can take advantage of the state's corporation-friendly regulations. It's very easy to set up or move a company to Delaware and, once you do, corporate taxes are low and there's no legal obligation to publicly declare information such as who your company's directors are or file accounts, which is compulsory in many jurisdictions, including England and Wales.

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