Virgin to go private
The tidal wave of private-equity takeovers of British companies shows no sign of abating, even though the cost of borrowing to finance those deals has been rising, and in spite of politicians' growing unease about how little tax is paid by the beneficiaries.
The latest household-name business poised to fall under the control of private equity is , the cable TV, mobile phone and broadband business.
, one of the world's leading private equity groups, has made a preliminary offer for Virgin – which is listed on the rather than London – of between $33 to $35 per share for Virgin, well above its closing price on Friday of $24.37 per share.
That would value Virgin at approximately £5.6bn. The total value of the takeover deal – including Virgin's debt of almost £6bn – would be around £11.5bn.
It would therefore be the second biggest ever takeover of a British business by private equity, after Boots.
However it is too early to say whether Carlyle will end up as the owner of Virgin Media.
Virgin's board has asked its investment bankers, , to conduct an auction of the business.
It is believed that Virgin's managers feel that the business would be in a better position to grow as a private company. They would be freed from the onerous requirement to make quarterly announcements of earnings and could be less fettered in the way they invest in the business.
, another private equity group, is believed to have put together a consortium of private equity players to make an offer for Virgin.
A banker said there was likely to be interest in Virgin from "several other private equity groups".
The largest investor in Virgin Media is Sir Richard Branson. Sources close to Sir Richard say he would like to remain a shareholder in Virgin as and when it has been taken private.
It is believed that most of the other leading Virgin shareholders would be keen to sell at somewhere around the price offered by Carlyle – though the Virgin board believes the business could be worth around $40 a share.
Following pressure from leading shareholders, in May Virgin asked Goldman to carry out detailed research on what the business is worth, or what's known as a valuation exercise.
Virgin is a substantial business. It has 9m customers and annual turnover of £4bn.
It is in a bitter legal dispute with following the failure of the two businesses to reach an agreement on terms for Sky to be carried on Virgin's cable channels.
In its last results, Virgin said it had 3m users of its television services, 3.4m broadband customers, 4.5m subscribers to its mobile phone service and 4.1m fixed-line telephone customers.
It is believed that Goldman will take around six weeks to whittle down the actual and potential bidders for Virgin to a definitive short list.
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You don't like private equity but your prejudice is getting in the way of accurate reporting and even leading to bias...you say
"...in spite of politicians' growing unease about how little tax is paid by the beneficiaries"
There is no political issue about the tax paid by the beneficiaries. The beneficiaries are the pension funds and other investors in the funds. There is a political debate about tax paid by the managers of the funds, which is a wholly different thing.
You draw attention to the fact that Carlyle is listed in the NASDAQ "in the US rather than in London" but you fail to mention that Goldman Sachs is listed in the US (rather than in London, you fail to say where Providence is based, the fact that many of Branson's interest held, that through offshore vehicles, that BskyB is controlled by Newscorp an Australian listed business etc.. What relevance therefore has Carlyle's US listing other than xenophobia?
Tomo
Virgin need something, and Uma Thurman wasn't enough ! A decade or more of appalling customer service from NTL won't be turned around overnight.
OFCOM say cable TV is used by 13% of homes which is a takeup of 25% in cabled areas, pretty poor.
Lets hope who ever takes Virgin Media over can sort out this childish rubbish with Sky and get Sky One back on cable.
The problem with private equity firms, as we have seen with a number of other takeovers (e.g. the AA), is that they are only concerned about increasing the profit of the business they takeover. That usually takes the form of cutting staff, cutting services and increasing the prices to their (loyal) customers.
NTL (and Virgin) have dreadful customer service. The first poster commented that this will not change overnight - it will not change at all (and will likely get worse) if taken over by a private equity firm.
Providence surely will be the preferred buyer. As owners of Phones 4 U they have the high street presence to grow the business.
As a long time Cable customer, I have seen this business taken over several times, so that it has been successively Cable London, Telewest, NTLTelewest, and now Virgin. Virgin only rebranded earlier this year: I was just getting used to it, and now it appears to be changing again. So, I have two questions:
Tomo (1), Robert's point is that it is Virgin Media that is listed on the NASDAQ, not Carlyle. This is a legacy of its origin as NTL.
Can someone explain the beneifts of an LBO to the Virgin Media busienss, rather than keeing it public??
private equity firms are idiots
Is there any evidence that private equity firms ever improve the level of service or range of products offered by a company it has just acquired? Isn't the entire purpose of private equity to make money (rather than running a successful business)? Ruthlessly cut services to maximise short-term profit and to secure more loans, then flog off the company on the strength of the brand at a vast profit before anyone notices just how much weaker and debt-laden the company has become. Perhaps private equity firms should be taxed according to how much they degrade the service for existing customers...
@Brian,
in the private sphere they can sack all the useless customer service people, and hire a fraction of the number to do a better job (not difficult)
Tomo wrote: "What relevance therefore has Carlyle's US listing other than xenophobia?"
Because data released recently by the Treasury shows that the foreign ownership of UK companies has risen to over 50% now from 30% in 1997. That means over 50% of UK companies are now under someone elses control.
Can you ever possibly imagine the US Govt allowing such a situation to arise there?
they are only concerned about increasing the profit of the business they takeover.
My, that IS unusual! What is the main aim of listed companies then?
Dick
So what if 50% of the stockmarket is owned by foreigners?
In response to Dick (appropriate name?)
The rest of the world owns approximately US$1Trillion more of America than America owns of the rest of the world.
What is wrong with Private Equity - their business is to make money - and they are very good at that. Purchasing other comapnies is merely the way thay make their money. no different from buying coco beans or gold bars.
Tomo
I didn't say 50% of the stockmarket.. I said 50% of companies.. There's a difference.
Why is it important? Well if you work in the City or similar you probably couldn't care less but for those who work in the real world and think a little further then the end of this week it is important.
Think control not ownership.. The transfer of control means the potential that these companies represented to the UK is now lost and so of course are any decisions over their future. Think also of the loss in corporation tax.. I can't remember the figures but last year a Treasury reported suggested this was quite high and of course this means you and I and everyone else has to make up the difference.
It also means in many cases a loss of opportunity to the rest of the supply chain and often results in a loss in high value R&D jobs.
A degree of overseas control is acceptable because it can provide opportunities but 50% and growing is just too high.. No other country in the world is this careless.
"The Carlyle Group".. is this the same Carlyle Group that the Bush family and the Bin Ladden family are linked to in Michael Moore's Fahrenheit 9/11 ?
Dick
You say" Think control not ownership.. The transfer of control means the potential that these companies represented to the UK is now lost and so of course are any decisions over their future. Think also of the loss in corporation tax.."
These argument are just plain wrong. Foreign shareholders do not have different interest from UK shareholders. Both want to make money. You cannot "control" a UK company without making a takeover offer for the whole company. In many cases the so called foreign shareholders are UK shareholders who choose to invest through foreign vehicles (many of Richard Branson's funds are considered to be foreign investors by the way in these statistics). A considerable proportion of Asian and Middle eastern money is invested through London annd counts as domestic money. The ownership statistics are misleading on this point becuase they do not consider beneficial ownership but even if they were correct, it should not make a difference.
And as far tax.... UK Companies pay UK tax no matter what proportion of the shareholders are foreign. I don't where you get the opposite idea from but it is not correct.
No other country would do this you say - but plenty do: look at Ireland, belgium, netherlands, etc for example of more. It is true that we are the most open large economy in the world but that is why we have the world's biggest financial centre in London with the taxes it generates and the employment it brings.
Isn't Branson's Virgin group essentially a private equity shop? The only difference is that the companies he invests in gets the same branding.
Blah - also an appropriate name..
Ah but the subtle difference between the UK and the USA is that although they also have a large PE sector they're still creating new companies as well.
According to the DG of the CBI the UK hasn't created a decent global company from scratch for 25 years which interestingly coincides with when the Big Bang took place..
I suppose it's something to do with the quality of UK financial management.
Perhaps I may have the wrong angle, but doesn't it seem like a long thought out plan slowly coming together for Sir Richard. As has been said he would like to hold onto his shares, where as everyone else will jump ship. leaving Sir Richard as the biggest Share holder with more to buy, of a now (to be) private company, so giving him the power to operate and introduce his own guy's, so the company can be run with true Virgin values and not just painted up stuff.
It is understood that Virgin Media has about 9 million customers. If the Carlyle group is indeed sucessful in obtaining Virgin Media, the number of customers will go down to 8,999,999.
You see, some of us consumers are guided by ethical precepts in what we both purchase and/or subscribe to. The Carlyle group represents the three "R's" of bad business. It is Repellant, Repugnant, Repulsive. Don't take my word for it - have a search on the web.
Daniel Goleman, author of the famous text called "Emotional Intelligence" was interviewed on the ´óÏó´«Ã½ World Service following the publication of a text about business, weighing 4kg, and which needed its own handle to carry around. In the interview, he described 3 types of organisation - the ethical organisation, the stakeholder organisation, and the bottom line organisation. The latter he described in the interview as one which will go to the wall so to speak, one which will do what it thinks it can get away with. Rather like Worldcom and Enron. The Carlyle group is just such an organisation. If it takes over Virgin media, my telephone and broadband, as well as my mobile accounts will be closed. A small drop in the ocean compared to the Carlyle group's billions, but others are not blind to the sophistry of this ugly organisaton
Since Virgin Media took over NTL-Telewest customers have been totally ignored. Therefore I will be moving once the contract I signed with Telewest last August expires next month.
Dick,
Wouldn't Virgin itself count as a global company? With airlines, telecoms, soft-drinks etc etc from Europe to North America, Africa, Asia and Australasia.
Sounds pretty global to me.
Also we could mention vodafone - the Worlds biggest mobile company.
Also, the point that the RoW owns US$1tn more of America than they own of the RoW - does it matter where the shareholders are?
It was UK venture capital that founded google and Yahoo (a European comapny).
Also noteworthy is that over 100 of Europes biggest 500 companies are registered in London.
Peace and Love.
A heated debate...however, I do feel that there is a great loophole in private equity firms all due to the fact that they can get around corporation tax which in turn opens up the possibility of cost cutting. This effectively leads to a higher profit margin and simultaneously share prices!!!! (less costs, higher profit). The only question we should be posing to ourselves is the power of the private equity firm that is taking over the Virgin media empire; the bigger the company, the more power it will have over costs and tax. Yet, I do feel that private equity firms are somehow unethical and therefore require to undergo scrutiny from Competition Commission and Office of Fair Trading.
"It is believed that Virgin's managers feel that the business would be in a better position to grow as a private company. They would be freed from the onerous requirement to make quarterly announcements of earnings and could be less fettered in the way they invest in the business."
...Since when has the publication of quarterly announcements been 'onerous'? Bureaucratically maybe, but a restriction to growth as the comment suggests? please...
Is this Mr Petson's insight or Virgin/Carlyle's? I sincerely hope the ´óÏó´«Ã½'s business editor can come up with more valid and realistic reasons. Incidentally, I agree entirely with the second point but the insight is somewhat reduced in impact by the first 'schoolboy' argument.
There were 2 surprises:
1. Is there any market (broadcasting market i mean to say) left to grow in UK.
2. Where is it?
Acceptance to buy is only one element of story. Making it profitable to be sold again by private equity players is another story.
I am interested in a "surprise" answer for second question.
Cheers,
Navin
I've been very happy since NTL:Telewest merged with Virgin Mobile to create Virgin Media.
My digital TV service has improved - including a new on-demand channel (Virgin Central) and with Sky One gone I've found time to enjoy higher quality programming on other channels.
I've been able to get an exclusive mobile offer saving me £££'s and their customer service has been excellent. Now I'm looking forward to the launch of Virgin 1 later this year.
In cabled areas, Virgin Media is the number 1 choice for pay-TV, it's a shame not everywhere is cabled.
You should have paid attention in English class Tomo. Robert's exact quote refers to Virgin, not Carlyle. I quote:
(italics mine).
The driving factor in the quote is the dashed insert, the portion I highlighted in italics. It is an insert that refers to Virgin specifically.
Virgin is a British company, but it is listed on NASDAQ as opposed to the London Stock Exchange, which is a very unusual position. However, there is nothing nefarious about it, it's a thing left over from when NTL, later NTL:Telewest and now Virgin Media, listed on NASDAQ to gain better access to funding on the US stock market in the heydays of IPO's and the like.
There's nothing xenophobic about Robert's quote. He just points out a quirk in Virgin's listing, which brings to the table additional possible complications (minority shareholders in the US, amongst others) that Carlyle may encounter.
right back in the early days of 'cabletel' we had no problems but since they sold to ntl it has been a pain in the backside with various problems with service etc.
then b
virgin came along and then they took sky away from us, with no reimbursment.have had several problems with virgin since they took over from ntl and all my emails of complaint about one this and another have gone un answered, so hope fully whoever takes them over they actually listen to the customer.
In relation to Tomo's comment (top of the list), I think you'll find (if you read Peston's original article on the ´óÏó´«Ã½ website) that he was referring to Virgin being listed on the Nasdaq stock exchange, as opposed to Carlyle, which you assume. In fact, come to think of it, how can Carlyle - as a private equity group - be listed on any of the world's stock market??!!?
In reply to Lawrence. What is this 'higher quality programming' on other channels?? Sky One was the main reason I got digital TV. Virgin Media have treated its existing TV customers appallingly. Virgin Central is a joke and in no way compensates for the loss of Sky One.
In response to items number 28 and 32, I've been with NTL/Virgin Media for some years and I've not had any problems. I have tv, telephone and broadband. Yes it was a shame that we lost some sky channels but because of it I now have a better deal with them.
I have also spoken to Customer services on a number of occasions and found them to be excellent.
Brian love. Try doing the job before you knock the people who are already doing it. It ain't as easy as it seems mate
Dear Robert,
Metro net is in administration, what a disaster.However it is Brilliant news, for those who advocate PFI, as a drain on public, and shareholders money, Equity companies will be realling at this, and it will not be the last by a long chalk.PFI is not what it is cracked up to be, provision in the contracts could see its investment returning back into the hands of PRIVATE EQUITY COMPANIES IN THE LONG TERM,
"What happens when hospitals return back to those who built them"?
It is a shame that sky channels are gone on Virgin Media but Sky panicked on the competition.Hence taking away the sky channels.I cannot understand why the public don't see this.Virgin's customer service has improved dratiscally.GOOD ON YOU VIRGIN FOR TAKING ON SKY.
all get over it sky is gone hopefully never to return. Virgins customer service is excellent and there deals save me loads and i cant wait to get virgin 1 like so the company is investing. GOOD ON U VIRGIN