Malone will avoid UK rights war with Murdoch's BSkyB

LONDON Wed Feb 6, 2013 7:39pm IST

1 of 2. A logo is seen next to the entrance of the Virgin Megastore at the Champs Elysees in Paris, January 4, 2013.

Credit: Reuters/Christian Hartmann

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LONDON (Reuters) - John Malone's Liberty Global will avoid a battle with Rupert Murdoch's BSkyB over expensive content like English Premier League soccer, the U.S. company said after agreeing to buy BSkyB's biggest rival.

Liberty is buying Virgin Media for about $15.75 billion in stock and cash, pitting Malone against his old rival Murdoch in British pay-television and broadband.

Both Virgin Media and Liberty Global said the deal, worth more than $23 billion including debt, was more about expanding the U.S. group's presence in Europe than shaking up British pay-TV.

Virgin Media had a strong commitment to share content with Sky, Liberty Global Chief Executive Mike Fries said on Wednesday, and he wanted to make sure Virgin Media had access to premium programming.

"We do not see any reason why that would change or any reason why Virgin Media needs to compete with Sky for that premium content," he told reporters.

Liberty will serve 25 million customers in 14 countries after the deal, overtaking ComCast as the world's number-one cable TV operator by subscriptions, Fries said.

Virgin Media, which has 4.9 million customers compared to BSkyB's 10.7 million, was formed when cable groups Telewest and NTL and mobile telecom operator Virgin Mobile merged in 2006.

That deal was led by Virgin Group's Richard Branson, who still owns around 3 percent, and who will make about $316 million from the Liberty takeover.

KEEPING THE PEACE

Virgin Media's first few years were marked by lengthy and costly legal fights with BSkyB over access to channels and content.

More recently, however, Virgin Media boss Neil Berkett has stabilized the group, taking it into the black two years ago after years of losses racked up in a costly network expansion.

In a peace deal in 2010, it sold BSkyB a package of channels and offered some Sky high-definition channels to its own customers.

Since then, Virgin Media has focused increasingly on selling high-speed broadband and technological innovations such as digital TV service Tivo.

Fries, who turned 50 on Wednesday, said he would not risk the stability of the market by engaging in new bidding wars.

"Neil's done a great job with building a strong relationship with Sky that is not based on personalities or drama," he said.

Last year, BSkyB and telecoms operator BT signed a three-year deal worth 3 billion pounds to show English Premier League matches, cementing the league's position as the most valuable domestic soccer competition in the world.

VIRGIN MEDIA RESULTS

Virgin Media said it added 42,700 new cable households and 62,700 cable broadband connections in the fourth quarter, its best customer additions in four years according to analysts.

Citi said the results proved that the "rude health" of Britain's broadband market was still in evidence.

Fries said the critical players in Britain - BT, BSkyB and others - had reached stability in pricing and products.

"We get the sense it is a rational, competitive market, where there is reasonable pricing stability and reasonable customer growth, at least for Virgin (Media)," he said.

Fries said Liberty had admired Virgin Media for some time and decided to strike now because of availability of financing and the groups' relative stock prices. Shares in Liberty Global have soared more than 80 percent in the last 12 months.

Virgin Media's New York-traded shares jumped 18 percent to $45.61 after the deal was confirmed on Tuesday. Liberty will pay about $47.02 for each Virgin Media share based on Tuesday's closing prices, using cash and shares of its class A and C stock.

Liberty Global would not launch a major expansion of Virgin Media's cable network, which covers around half of Britain's households, choosing instead to invest in product innovation and increasing broadband speed, Fries said.

Analysts said there was little chance of a rival bidder and that was reflected in Liberty's offer.

"It is difficult to see where a counter-bid could come from at this time," said brokers at Espirito Santos.

Berkett said he would step down once the deal was complete. "My preference is to step down at closure," he said. "I'm not a very good number two."

(Editing by Rosalba O'Brien and Tom Pfeiffer)

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