"Like all of our strategic acquisitions we expect this combination to yield meaningful operating and capex synergies of approximately $180 million per year upon full integration. But just as importantly, Virgin Media's market leading innovation and product expertise, particularly in mobile and B2B, will accelerate our own development of these business segments."
"For these and other reasons, Virgin Media will be complementary to our own organic revenue and OCF growth profile, while providing attractive free cash flow enhancement to our shareholders. As a result, we intend to increase our commitment to share buybacks going forward with an initial target of approximately $3.5 billion over a two-year period upon closing."
Virgin Media CEO Neil Berkett said: “Over the past six years, Virgin Media has transformed the digital experience of millions of customers, catalyzed a deep-rooted change in the UK’s digital landscape and delivered impressive growth and returns for our shareholders. I’m confident that this deal will help us to build on this legacy. Virgin Media and Liberty Global have a shared ambition, focus on operational excellence and commitment to driving shareholder value. The combined company will be able to grow faster and deliver enhanced returns by capitalizing on the exciting opportunities that the digital revolution presents, both in the UK and across Europe.”
Transaction DetailsThe implied purchase price, before taking into account transaction costs and other expenses, represents an equity value of approximately $16.0 billion and an enterprise value of approximately $23.3 billion. This represents a purchase price multiple of 8.8 times Virgin Media’s 2012 OCF, and 7.0 times Virgin Media’s 2013 estimated OCF, after taking into consideration the expected annual impact of approximately $110 million of operating synergies that may be realized following full integration and after adjusting the consideration to be paid for certain tax assets. 3 The equity purchase price will consist of a combination of shares and cash. Based on Virgin Media’s fully-diluted shares of 335 million, 4 Liberty Global would issue approximately 86 million Liberty Global Class A shares and 65 million Liberty Global Class C shares (in each case such shares will be shares of the plc with substantially similar rights as the existing Series A and Series C common stock of Liberty Global, as applicable). In addition, each issued and outstanding share of Liberty Global common stock will be exchanged for one share of a class of ordinary shares of a newly-formed UK public limited company (plc) carrying substantially similar rights as the existing series of Liberty Global common stock exchanged. Based on issued and outstanding shares of Liberty Global as of February 1, 2013 and adjusting for the transaction, it is expected that Virgin Media shareholders will own approximately 36% of the pro forma shares outstanding of Liberty Global and have approximately 26% of the voting rights. The cash component of the equity purchase price, totaling approximately $5.9 billion, 5 will be funded largely through a combination of debt financing and available liquidity of both Liberty Global and Virgin Media. We intend to increase Virgin Media’s debt by more than $3.0 billion, such that on a pro forma basis, Virgin Media’s debt will fall well within our normal leverage target of four to five times annualized OCF. 6 Together with the net proceeds of Virgin Media’s debt financing, the transaction will be funded with cash and other sources of liquidity of Virgin Media and cash and borrowing availability under Liberty Global’s existing credit facilities. Adjusting for the transaction and completion of the intended financings, we estimate the leverage on the combined company would have been approximately 5 times at December 31, 2012, which would serve as a modest deleveraging event for current Liberty Global shareholders. We are targeting mid-4’s leverage by year-end 2014. As part of its acquisition of Virgin Media, Liberty Global will redomicile from Delaware to the United Kingdom by becoming a subsidiary of a new holding company, a UK plc. Liberty Global’s current headquarters and other principal offices will remain in place. Liberty Global will be listed on NASDAQ and will continue to report earnings and other financial statements in accordance with Securities and Exchange Commission regulations, including dollar denominated financial statements. Liberty Global’s Board of Directors will continue to form the board of Liberty Global, with the addition of one Virgin Media director to be named prior to the closing. Liberty Global believes that the creation of a UK plc as a new holding company will have several business and financial benefits, including increased strategic and financial flexibility, as it pertains to value creation for its shareholders. After closing of the transaction, Liberty Global may look to implement a European listing. Virgin Media will continue to operate under the Virgin Media brand in the UK.