Billionaire John Malone Makes a Power Move

by Tom Taulli | February 5, 2013 1:02 pm

Media mogul John Malone, who operates Liberty Global (NASDAQ:LBTYA[1]), is in talks to buy[2] Virgin Media (NASDAQ:VMED[3]). Even at the age of 71, he is showing no signs of slowing down. More importantly, his deal-making acumen is still impeccable.

Liberty Global, which has 19.6 million customers, will get a nice boost from picking up Virgin, which is the No. 2 operator in Britain. In all, the company has 4.9 million customers.

The No.1 player in Britain is BSkyB, which has about 10.7 million customers. Rupert Murdoch’s News Corp. (NASDAQ:NWS[4]) has a 39% equity stake in the company. (Oh, and he’s 81). Of course, Malone and Rupert are arch enemies. Years ago, they fought a bruising battle for the control of DirectTV (NASDAQ:DTV[5]).

Expect the hostilities to continue. Malone has been aggressively building a cable footprint across 13 countries in Europe. Along the way, he has been able to effectively monetize the assets, especially with broadband services.

With that in mind, a play for Virgin certainly makes a lot of sense. Britain is the largest cable market in Europe. Besides, Liberty has the resources to enhance the content offerings as well pump-up the marketing take away customers from BSkyB and other operators.

It’s true that a deal for Virgin will be massive, with an enterprise value of over $20 billion. But debt is extremely cheap right now. What’s more, the cable business continues to generate strong recurring cash flows.

Something else: Over the past few years, Virgin has taken tough steps to upgrade its network, cut costs and pare back the debt load. In other words, Malone will likely not be beset with large capital outlays.

Perhaps the biggest hurdle to a deal is getting regulatory approval. Britain can be pretty tough on acquisitions, especially for industries that are already concentrated. Thus, expect a long process.

While investors are a bit skeptical of the acquisition — with Liberty’s shares down over 3% in today’s trading — this is probably not a concern for Malone. He realizes that the deal environment is ripe for opportunities and it would be a big mistake to waste time. And by buying Virgin, the transaction will go a long way to help Malone build a European cable powerhouse.

Tom Taulli runs the InvestorPlace blog IPO Playbook[6], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook[7]” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders[8].” Follow him on Twitter at @ttaulli[9]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. LBTYA: http://studio-5.financialcontent.com/investplace/quote?Symbol=LBTYA
  2. talks to buy: http://www.reuters.com/article/2013/02/05/us-liberty-virginmedia-idUSBRE91409220130205
  3. VMED: http://studio-5.financialcontent.com/investplace/quote?Symbol=VMED
  4. NWS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWS
  5. DTV: http://studio-5.financialcontent.com/investplace/quote?Symbol=DTV
  6. IPO Playbook: http://investorplace.com/ipo-playbook/
  7. How to Create the Next Facebook: http://www.amazon.com/gp/product/1430246472/ref=s9_simh_gw_p14_d0_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-3&pf_rd_r=0GRB6ZMCTYDZVNG7Q7NV&pf_rd_t=101&pf_rd_p=470938811&pf_rd_i=507846
  8. High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders: http://goo.gl/pR2F3
  9. @ttaulli: https://twitter.com/ttaulli

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