Liberty Global’s $16 billion deal to buy British cable giant Virgin Media will create one of the largest broadband companies in the world, and sets up Liberty mogul John Malone, the famed U.S. cable financier, in a clash of the media titans against longtime rival Rupert Murdoch and his News Corp. conglomerate. The deal is yet another sign that the media and tech mergers and acquisitions market is revving up to levels not seen since the financial crisis. Earlier this week computer giant Dell announced plans to go private in a $24.4 billion deal.
Virgin Media is the second largest pay-TV company in the U.K. behind European satellite giant BSkyB, which is majority controlled by News Corp., so the merger instantly pits Malone against Murdoch in the European media market. The Financial Times was first to report news of the impending deal, which is worth a total of $23 billion including debt. Virgin Group’s Richard Branson, the colorful billionaire impressario, stands to make about $316 million from the Liberty takeover, according to Bloomberg.
Liberty Global already has nearly 20 million customers, making it the second largest U.S. cable company after Comcast. By adding Virgin Media’s 4.9 million subscribers, the combined entity would vault ahead of Comcast to become the largest broadband company in the U.S. and Europe. (BSkyB has 10.7 million customers.)
Malone has made no secret about Liberty’s plans to expand in Europe, where it is already a powerful player in over a dozen markets. For example, Liberty recently increased its stake in Belgian operator Telenet to 58%, although it failed in its attempt to take over the company outright. As part of the Virgin deal, Liberty plans to relocate its legal place of business to the U.K., though it intends to keep its Colorado headquarters as well as its presence on the Nasdaq stock exchange. Virgin Media will retain its brand name in the U.K.
Here’s how Reuters describes Malone, a legendary figure in U.S. telecom and media markets:
Dubbed everything from the Cable Guy to Cable Cowboy and even Darth Vader by former U.S. Vice President Al Gore because of his perceived ruthless style, Malone made his fortune through a series of deals that transformed, and ultimately consolidated, the U.S. cable industry into one dominated by a few big players.
“Liberty Global together with Virgin Media is a powerful combination,” Liberty Global President and CEO Michael Fries said Wednesday on a conference call with investors, as cited by the Associated Press. “In fact, it hits the mark on just about every strategic and operating criteria we have established for our company and provides significant benefits to Virgin Media subscribers and investors.” In a statement, Freis said that 80% of Liberty Global’s revenue will come from “just five attractive and strong countries” — the U.K., Germany, Belgium, Switzerland, and the Netherlands.
The Virgin deal “would complete Liberty’s cable empire and cause a new headache for [satellite TV giant] BSkyB,” Informa analyst Ted Hall told the Hollywood Reporter, adding: “If a deal goes ahead, the long-time number two cable operator and dominant European player will overtake U.S. giant Comcast to become the world’s largest cable [operator].”
This is not the first time that Malone and Murdoch have squared off against each other. In the mid 2000s, the two media moguls battled for control of U.S. satellite giant DirecTV. Malone threatened Murdoch by building up a large stake in News Corp., prompting Murdoch to deploy a so-called poison pill defense to protect his family’s control of the company. The standoff ended when Malone agreed to exchange his stake in News Corp. for a large stake in DirecTV.
This week, News Corp. said that strong performance by its cable channels, including Fox News and its regional sports networks, helped double the company’s net income to $2.4 billion. News Corp. is in the midst of a plan to break itself into two independent publicly traded companies, as the company seeks to regain its footing after a damaging phone-hacking and police-corruption scandal involving its U.K. newspaper business.
Robert Thomson, a former top editor at The Times of London and the Financial Times, will become CEO of the new publishing entity, which will keep the name News Corp. The 81-year-old Murdoch will serve as chairman of this company, which will include News Corp.’s newspapers, its education business, and the HarperCollins publishing house. Murdoch will also serve as Chairman and CEO of the much larger and more lucrative entertainment business, to be called Fox Group, which will include Hollywood movie studio 20th Century Fox, the Fox broadcast network, and cable news leader Fox News Channel. These latter businesses accounted for 90% of News Corp.’s operating income in 2012.
Murdoch and his trusted deputy Chase Carey are gearing up for a big push into the lucrative U.S. cable TV sports market, with a new national Fox sports network — code-named Fox Sports 1 — to compete with existing cable sports leader ESPN. On Wednesday, Carey, News Corp.’s COO, finally acknowledged the company’s plans. “We haven’t made an announcement about a national sports channel. I guess you could call it the world’s worst-kept secret,” Carey said, as reported by Forbes. “We think sports is a really attractive arena that has room in it to build big businesses.”
If News Corp. is feeling the heat from Liberty’s blockbuster buyout of Virgin Media, the media giant certainly isn’t letting it show. On Wednesday, News Corp. scion James Murdoch — Rupert’s second son — downplayed any threat from the deal. “I don’t think there’s really a big change to the landscape there,” he told Wall Street analysts, according to The Telegraph.
Still, it’s clear that the deal sets up a clash between two legendary media figures, Malone and Murdoch, especially in the European pay-TV and broadband market. As the media mergers and acquisitions market begins to heat up again following a multi-year drought in the wake of the financial crisis, Malone has just thrown down a major challenge to Murdoch. Let the games begin.