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Liberty Global – Virgin Media Merger Analysis
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  1. Liberty Global – Virgin Media Merger Analysis KrunalIntwala Samantha Hess Joe Cardoso Anisha Gandhi Michael Schneider May 9th, 2013 Liberty Global & Virgin Media | May 9th , 2013 1

  2. Executive Summary • Recommendation Buy Virgin Media • The Merger will create world’s leading broadband communications company • Liberty Global will gain access to UK market • It will add 5 million customers to Liberty Global’s existing 20 million customers • Combined synergy • $110 million in cost savings • $60 million in CapExsavings • Terms of Acquisition • The deal is $23.3 billion with offering premium of 24% at $47.87 Virgin Media share • 36% of Liberty Global’s shares will be owned by Virgin Media Shareholders with approximately 26% of voting rights • Company Description • Liberty Global: Leading international cable operator in Europe and South America serving 13 countries • Virgin Media: Leading provider of entertainment and communication services in the United Kingdom • Industry Outlook • Industry is expected to grow until 2016 at an average annual rate of 4.55% (exception for telephony industry) Liberty Global & Virgin Media | May 9th , 2013 2

  3. Decision Recommendation: Buy Virgin Media • World’s leading broadband communication company • Liberty global will gain access to UK market • Complementary strengths across video, voice and broadband products • Combined synergy • $110 million in cost savings • 60 million in CapExsavings • Combined company will have more leverage over negotiating contents licenses • Liberty Global will benefit from tax breaks from past Virgin Media’s capital losses • In December 2012, Virgin used the differed tax benefit approximately $4 billion • Liberty will be relocated to the United Kingdom by becoming a subsidiary of a new holding company, a UK plc. Liberty Global & Virgin Media | May 9th , 2013 3

  4. Terms of Acquisitions • Deal Size = $23.3 billion dollars • Deal Price = $47.87 per Virgin Media share • 24% Premium • Cash & Stocks Offer • $17.50 in Cash • 25.82% of LG Series A Shares • 19.28% of LG Series C Shares • LG will issue approximately $86 million LG Class A shares and 65 million LG Class C shares. • 36% of Liberty Global’s shares will be owned by Virgin Media Shareholders with approximately 26% of voting rights

  5. Virgin Media DCF Analysis

  6. Virgin Media Implied Enterprise Value

  7. Virgin Media Implied Share Prices

  8. Liberty Global Key Facts John Malone, Chairman Revenue: $10.3 billion (in millions) Customers: 19.8 million Michael Fries, President & CEO Headquarters: Englewood, Colorado Employees: 22,000+ Revenue: $10.3 billion dollars Customers: 19.8 million 34.2 million homes passed 34.8 million RGUs

  9. What is Liberty Global? • Liberty Global is a leading international cable operator with operations across 13 countries. • Their products/services include… (not a complete list) • Cable: Basic and premium programming, HD, DVR, HD-DVR, VoD, an electronic programming guide, etc. (45% of revenue) • Chellomedia: Producer and distributor of TV channels. • Content: 67 channels, of which 48 are 100% owned. • Revenue: 514 million dollars in 2012, 3% of total revenue. • Distribution: 390 million TV households. • Internet: High speed Internet access ranging from 100 Mbps to 150 Mbps. • 24% of revenue • Telephony: Various different telephone services, dependent on customer. (International calling, minute packages, telephone rental, etc.) • 15% of revenue • Business Services: Designed with the customer in mind to meet their specific needs.

  10. The Americas • Puerto Rico • Largest cable operator • 479,000 service subscribers • Chile • Largest multi-channel television provider

  11. Europe • Austria, Belgium, Czech Republic, Hungary, Ireland, Poland, Slovakia and Switzerland. (9) • The largest cable operators in their respective markets. • Germany, Netherlands and Romania. (3) • 2nd largest cable operators in their respective markets. • Germany alone accounts for 22% of Liberty’s total revenue.

  12. What is Liberty Global’s Strategy? • Telnet • Astral • NTL Ireland • Inode • Liberty’s business strategy has two main components… • Organic Growth • Innovation • Horizon TV • Mobile Services • Bundling Products & Services • Single-Play  54% • Double-Play  30% • Triple-Play  16% • Mergers & Acquisitions • For the past seven years, LG has focused on pursuing beneficial acquisitions. • Odakyu Telecommunication Services • Cablecom • IPS Multicanal • Austar

  13. SWOT Analysis

  14. Virgin Media Key Facts Revenue: $6.5 billion (in millions) Neil Berkett, CEO 16.3 83.7 Headquarters: New York City, New York Employees: 12,000+ Revenue: $6.5 billion dollars Customers: 5 million 13 million homes passed 12 million RGUs

  15. What About Virgin Media? • Virgin Media is a leading provider of entertainment and communication services in the United Kingdom. • Virgin operates in two segments... • Consumer: This segment includes our cable, internet and telephony services to our residential customers. • Accounts for 83.7% of revenue. • Business: This segment includes our cable, internet and telephony services to our business customers based upon their required needs. • Accounts for 16.3% of revenue.

  16. SWOT Analysis

  17. Deal Highlights • 80% of the combined company’s revenue will be coming from just 5 of it’s markets. • United Kingdom • Germany • Belgium • Czech Republic • The Netherlands

  18. Industry Outlook Forecasted Annual Growth Until the Year 2016

  19. VM & LG vs. the Industry Virgin Media & Liberty Global Compared to the Industry

  20. VM & LG Together Combined Results

  21. Common Size Balance Sheet

  22. Works Cited Liberty Global 10K Virgin Media 10K Bloomberg Terminal www.WallStreetJournal.com www.OneSource.com www.IBISWorld.com www.MarketLine.com