Feb. 6 (Bloomberg) -- John Malone’s Liberty Global Inc. agreed to buy U.K. cable-television provider Virgin Media Inc. for $23.3 billion in cash and stock to challenge Rupert Murdoch in Europe’s biggest pay-TV market.
The $47.87-a-share deal to buy Britain’s second-biggest pay-TV company includes $17.50 in cash, 0.2582 share of Liberty Global Series A and 0.1928 share of Liberty Global Series C for each of share of Virgin Media, according to a statement today from the companies.
An acquisition would put Liberty Global in a dead heat with Comcast Corp. as the world’s biggest cable company and would open a new battleground with billionaire Murdoch, whose News Corp. in the biggest owner of British Sky Broadcasting Group Plc. Malone is using Liberty Global to grow in markets outside the U.S. and already runs pay-TV providers in European countries including Germany, Belgium and Switzerland.
“Cross-border synergies are zero, but there may be long- term value for Liberty Global to move its listing away from the U.S. and to the U.K.,” Robin Bienenstock, a London-based analyst at Sanford C. Bernstein, wrote in a note yesterday.
Liberty Global, based in Englewood, Colorado, is the second-largest cable company in the world, behind Comcast. It generated almost 90 percent of its 2011 revenue in Europe. Of its 19.6 million customers using its TV, Internet and phone services, about 18.4 million are in Europe, with Germany and Belgium its biggest markets in the region.
Virgin Media, whose shareholders include Richard Branson’s Virgin Group, rose 17 percent to close at 2,889 pence in London yesterday after confirming the talks with Liberty Global. The company, with 4.9 million customers, has a market value of 7.75 billion pounds ($12.1 billion). Liberty Global fell 2.3 percent to $67.88 yesterday in New York.
Liberty Global has been the most active acquirer of television companies in the past 12 months, racking up eight deals for about $1.1 billion and paying an average premium of 14 percent, according to data compiled by Bloomberg.
Acquirers have paid an average premium of 22 percent for deals in the industry in the last 12 months, according to the data. That would have valued Virgin Media at $43.94 a share, or about $11.8 billion, using the stock’s average price over the past three months before yesterday.
Malone’s company acquired Germany’s Unitymedia in 2010 and Kabel Baden-Wuerttemberg the following year to create the country’s second-largest cable operator.
Liberty Global’s bid for full ownership of Belgium’s Telenet Group Holding NV fell through last month after investors rejected a 2 billion-euro ($2.7 billion) offer, leaving Liberty Global with a 58 percent stake.
An acquisition of Virgin Media would reignite the rivalry between Malone and Murdoch, who were competitors and business partners in the U.S. TV market. The deal would also intensify the competition between the two men’s companies in Europe, where they vie for the title of the No. 1 pay-TV provider.
Murdoch owns shares in the Sky businesses across Europe, including about 39 percent of BSkyB and more than half of Germany’s Sky Deutschland AG. His companies have more than 19 million pay-TV customers in Europe.
The U.K. is Europe’s biggest pay-TV market by revenue, ahead of France and Germany, according to IHS Screen Digest. U.K. pay-TV providers are also benefiting from growth in Web subscribers.
By acquiring Virgin Media, Liberty Global would also boost its growth and potentially save in equipment and programming costs, according to Erhan Gurses and Paul Sweeney, media analysts at Bloomberg Industries.
The British company has also been making its Internet offering, advertised by runners Usain Bolt and Mo Farah, more attractive by boosting speeds. The company is scheduled to report fourth-quarter results today.
BSkyB, with almost 11 million subscribers at the end of 2012, reported rising sales and earnings last week for the six months ended Dec. 31, after raising prices and adding high-speed Internet customers.
Liberty Global is rated Ba3, or three levels below investment grade, by Moody’s Investors Service. Standard & Poor’s rates its B+, or four levels below investment grade. The company reported $26.5 billion in total debt as of Sept. 30.
Liberty isn’t alone in making acquisitions. News Corp. has been following closely, with seven deals valued at $1.33 billion in the past 12 months, according to data compiled by Bloomberg.
News Corp.’s 7.8 billion-pound bid for the remaining stake in BSkyB in 2010 was thwarted a year later when employees at News Corp.’s U.K. print business were caught hacking into subjects’ mobile phones for stories, making the acquisition politically impossible. Murdoch plans to split his company into publishing and entertainment groups by the middle of this year.
In 2008, Malone traded 16 percent of News Corp. for a 41 percent stake in pay-TV provider DirecTV, $625 million in cash and three regional sports networks. The swap ended a standoff that led Murdoch to install a takeover defense plan in 2004 to stop Malone from boosting his stake in News Corp.