Someone believes the chatter around Virgin Media. Shares traded up as much as 7.6 per cent on Monday at the US open after the Observer reported at the weekend that a private equity consortium, led by Providence Equity Partners, is considering a $15bn bid for the cable operator.
That follows dismal first quarter results, which prompted Franklin Mutual, the company’s second largest shareholder to say that it might initiate talks with management on Virgin Media’s strategic direction. The company’s largest shareholder is of course Sir Richard Branson, who sold his Virgin Mobile business to the old NTL last year, and leased them the right to use the Virgin brand. Cue a new name for NTL and a pricey ad campaign based around its ‘quadruple-play’ offering – mobile, fixed line, pay-TV and broadband.
The Observer claims that US group Providence, which held talks with the group about a $31 a share bid last summer, is now considering taking advantage of the group’s relatively weak share price and is talking to Blackstone, KKR and Cinven about a possible approach. The shares fell below $23 after the first quarter rout earlier this month – before coming back slightly to close at $24.85 on Friday.
US-listed Virgin Media (and as NTL in its previous incarnation) has always been seen as something of a peculiarity in the States, as an article by Barron’s earlier this month neatly demonstrated.
“Shares of the largest British cable operator, Virgin Media fell 20 percent in the past year and now trade at a big discount to their U.S. counterparts,” the story says. “The extent of Virgin’s recent slump certainly was perplexing. Investors have flocked to U.S. cable companies because they believe years of infrastructure building have positioned them for the “triple play” of providing bundled telephone, television and Internet services.”
Virgin, it points out, offers “quad play.” So by that measure, “ought to have investors foaming at the mouth.”
In the UK, the company is more likely to get its customers foaming at the mouth. Notorious for its sub-standard customer service, as the company has expanded its offering it seems simply to have added business lines in which it fails to compete: up against BSkyB, with whom it is currently squabbling, in TV, numerous well-established competitors in mobile, and unable to offer broadband in parts of London as recently as last year.
As George Gutowski put it on Seeking Alpha after the first quarter results: “For a brand that is supposedly fresh and exciting, they seem to have all the standard problems incurred by the industry segments that they operate in. As a matter of fact, they seem to have all the problems that each industry segment seems to have. This begs the question “Why are they here?
“….to entice the offer from someone with money, you need to be growing and causing problems in your competitive space. Right now, Virgin Media is not trouble, except for shareholders. Given its very high debt levels and negative cash flows, the lenders are feeling very ill over the future. The cherry is not worth plucking.”