The deal had not been finalised by the time we went to press, but NTL and Virgin Mobile were edging closer to a buy-out that could lead to the creation of a giant quadruple-player telecoms business to go head to head with BSkyB and BT.
The deal values Virgin Mobile at around £800m. Richard Branson’s Virgin Group owns 72% of the MVNO. The new business – which would address the domestic market for fixed-line, mobile, broadband and TV – would almost certainly be rebranded as Virgin.
The deal has the support of T-Mobile, Virgin Mobile’s network provider, which has waived its right of veto. But the minority shareholders – including two big institutional investors – have been holding out for a better offer.
Currently NTL has tabled a bid of £817m and is thought unwilling to go much further than that. The deadlock could be broken by Virgin Group’s willingness to accept a lower price for its share and so allow NTL to top up the amount offered to the other shareholders. At present the proposal is that Virgin Group swaps its holding for an estimated 14% stake in NTL if a deal is struck, though some cash could change hands.
In return for its flexibility, Virgin Group would expect to see generous licence payments from NTL for the use of the Virgin brand. Under a typical Virgin brand agreement with a third party the group takes between 1% and 1.5% of revenues.
Jerome Buvat, managing consultant at Capgemini Telecom, Media and Entertainment, has characterised the merger as “a defensive move of two players facing increasingly competitive market conditions”.
He thinks the merger will help both – “Virgin will bring a strong brand to NTL and Virgin will benefit from NTL’s strong presence in the family segment”. And as well as the four-pronged range of services, he suggests the combined group will also be able to offer high-quality TV programmes for mobile customers.