Bloomberg News

Virgin Media Chief Attracts $16 Billion Buyout as Final Act

February 06, 2013

Virgin Media Chief Attracts $16 Billion Buyout as Final Act

Berkett, a native New Zealander and former banker, took Virgin Media to its first annual profit in 2011 by concentrating on fast Web and basic TV customers and is credited with helping stabilize debt. Photographer: Pixelbully

Since Neil Berkett became Virgin Media Inc. (VMED)’s chief executive officer in 2008, he’s tripled the company’s share price and attracted a $16 billion takeover bid from billionaire John Malone. Now he’s on his way out.

“I’m not a very good No. 2,” Berkett said in a conference call today in which he announced his resignation. He’ll leave when the deal closes and plans to take time to evaluate his next steps. Berkett stands to get as much as $85 million when the takeover is completed, said a person familiar with the situation who asked not to be identified as the matter is private.

Berkett, a native New Zealander and former banker, took Virgin Media to its first annual profit in 2011 by concentrating on fast Web and basic TV customers and is credited with helping stabilize debt. He chose not to compete with U.K. pay-TV leader British Sky Broadcasting Group Plc (BSY) in premium content. BSkyB spends 2.3 billion pounds ($3.6 billion) a year on content.

Berkett’s team “has rehabilitated the stock from a seriously debt distressed and structurally weak company and turned it around,” Sanford C. Bernstein analyst Robin Bienenstock said in an interview. The buyout “looks like the crowning achievement to his turnaround.”

Billionaire John Malone’s Liberty Global Inc. (LBTYA) agreed to acquire Virgin Media, Britain’s second-largest pay-TV provider, in a $16 billion cash-and-stock transaction announced in the U.S. yesterday. The deal is expected to be completed in the second quarter. Virgin Media will help the new owner compete with Rupert Murdoch, whose News Corp. (NWSA) holds about 40 percent of BSkyB.

Global Empire

“This has taken a huge amount of my life,” Berkett said today. “There’s been enough fun and adrenaline.”

A Virgin media spokesman said information on Berkett’s payments will be announced later.

Berkett will probably receive $65 million to $85 million on leaving the company, with most of this figure based on share options and vested awards, the person said. About 4,000 Virgin Media employees also stand to benefit on completion of the takeover under a so-called share-save program, they said.

Liberty Global, led by CEO Mike Fries, said it hasn’t found a successor for Berkett to lead Virgin Media.

Virgin Media fell 0.5 percent to 2,875 pence at 10:48 a.m. in London after jumping 17 percent yesterday. BSkyB rose 0.6 percent to 814 pence. Virgin Media (VMED)’s shares have more than tripled from the $14.40 closing price in U.S. trading on March 6, 2008, when Berkett was announced as CEO, compared with an advance of 48 percent for BSkyB in the same period.

Last Piece

“The acquisition of Virgin Media would complete Liberty’s cable empire, and cause a new headache for Sky,” said Ted Hall, a senior analyst at researcher Informa Telecoms & Media.

Aside from possibly competing with BSkyB and BT Group Plc (BT/A), the U.K.’s largest fixed-line phone company, for more exclusive content rights, Virgin Media faces online rivals including Netflix Inc. (NFLX) Such streaming sites, which allow consumers to watch movies and films anytime, are giving established broadcasters a run for their money and are increasingly commissioning exclusive content.

“If we do our jobs right, I see a tough road for them and see their customers gravitating to our platform for those services,” Fries said in a conference call today.

Berkett, who lives in southern England, not far from Virgin Media’s offices in Hook, is the father of four children. He has supported his home team by sporting the New Zealand All Blacks rugby jersey at work.

Infinity Offer

Under his leadership, Virgin Media boosted the number of cable subscriptions to 4.9 million at the end of last year. In the fourth quarter, it added 42,700 customers. Until BT began offering its Infinity superfast Web product in 2010, Virgin Media’s broadband was the fastest, said Lawrence Sugarman, a media analyst at Liberum Capital Ltd. Virgin Media began selling an Internet-connected TV offering from TiVo Inc. last year.

“All of these innovations have justified tacking on a few pounds here and there,” Sugarman said. “They are running at above inflation with annual price increases.”

Virgin Media has also shown savviness with campaigns for its Internet offering advertised by runners Usain Bolt and Mo Farah.

One benefit of Liberty ownership would be the potential to reduce financing costs by borrowing at a cheaper rate, analysts said.

Viacom, Sirius

Most of Liberty Global’s operations are in Europe, with holdings in Germany, Austria, Belgium, Ireland, Switzerland and six other countries on the continent. Liberty said it will relocate its headquarters from the U.S. to the U.K.

Malone has historically used his Liberty companies to hold media and telecommunications shares. Liberty Media (LMCA) owns shares in Time Warner Inc. (TWC), Viacom Inc. (VIAB) and Sirius XM Radio Inc. while Liberty Interactive holds interests in video and online shopping businesses, such as QVC Inc. and HSN Inc.

Virgin Media (VMED) today reported a 25 percent jump in fourth-quarter operating profit to 208.6 million pounds. Net income reached 2.7 billion pounds, helped by 2.6 billion pounds in tax gains.

“Virgin Media has a lot of tax assets that would be valuable to Malone, who runs a very tax-efficient organization,” said Chris King, an analyst at New York-based Stifel Nicolaus. “Given Liberty Global’s share performance over the past months, he has a very strong currency to pay with.”

Liberty Global shares have jumped 44 percent in the past 12 months in New York. Malone attempted to buy what was the predecessor of Virgin Media as early as in 2002. His attempts to take control of NTL Inc. and Telewest Communications Plc were then resisted by the companies’ bondholders. NTL and Telewest merged in 2006, and then combined with Richard Branson’s Virgin Mobile U.K. to become Virgin Media.

“Nothing Virgin Media has done is game-changing,” Sugarman said. “They looked at the financial position and said if we restructure debt we’ll get efficiencies. They didn’t want to create a view where they antagonize the marketplace and create a price war.”

To contact the reporters on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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