The deal has an enterprise value of US$23.3 billion, or almost nine times Virgin Media’s 2012 operating cash flow, and credit ratings agency Moody’s questioned the rationale for paying that much.
“Although the transaction will help LGI to meaningfully increase its overall scale and geographical diversification, the underlying industrial logic to justify LGI paying an effective premium of 24% (to Virgin Media’s closing share price on February 4, 2013) remains somewhat unclear,” Moody’s noted.
It added: “The UK market is relatively mature and competitive compared to LGI’s recent acquisitions and interest in higher growth markets in Europe, particularly Germany. The transaction will lead to relatively modest operating and [capital expenditure] synergies at Virgin Media, in Moody’s opinion.”
The view on LGI’s UK deal came as James Murdoch, chairman and CEO of News Corp.’s international operations shrugged off the threat of increased competition from Virgin Media when it becomes part of LGI’s large, international group of MSOs.
News Corp. controls satellite pay TV operator BSkyB in the UK and, in the wake of quarterly results, Murdoch told analysts: “Across Europe particularly in Ireland and in Germany, we compete as well as work with Liberty Global, in Germany Liberty Global, through Unity and KBW, distributes a lot of our programming for Sky Deutschland. And in Ireland, Sky and Liberty have been competing for some time. So I don’t think there’s really a big change to the landscape there.”