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January 16, 2006

NTL/Virgin Mobile: offering to tempt shareholders

UK mobile operator Virgin Mobile has confirmed it is in discussions with NTL after the UK cable giant raised its original offer of GBP817 million to GBP961 million. However, while this latest installment may appear to be moving things along, another stumbling block has emerged in the form of a possible investigation from the UK Takeover Panel.

By CBR Staff Writer

NTL has increased its takeover offer for Virgin Mobile.

NTL’s pursuit of Virgin Mobile has proved to be a protracted affair. It began back in early December when NTL offered 323 pence ($5.61) in cash for each Virgin Mobile share. At that time, the offer was strongly backed by Virgin Mobile’s largest shareholder, British entrepreneur Sir Richard Branson. However, the bid did not impress Virgin Mobile’s minority shareholders, and the operator’s management team rejected the offer.

Intense media speculation and reports of behind-the-scenes negotiations followed the initial rejection, and the first signs of a potential crack appeared recently when it emerged that one of Virgin Mobile’s biggest institutional investors had sold a large tranche of stock. It is believed that Aberforth Partners offloaded nine million shares at 362 pence ($6.39) a share before NTL submitted a revised takeover offer of 372 pence ($6.57) a share.

It is not hard to see why Virgin Mobile is so desirable to NTL. It has incredibly strong brand name and is recognized as having excellent customer service. These two points have been noted problem areas for NTL for a number of years. Part of any deal would include the licensing of the Virgin brand, which would allow NTL to rebrand and reinvent itself as a ‘quad-play’ service provider offering mobile phone, fixed-line, pay TV, and internet access.

Yet there is still a potential stumbling block. Just before the revised bid was confirmed, the Sunday Telegraph reported that one of Virgin Mobile’s largest minority shareholders, Fidelity Investments, is considering asking the UK Takeover Panel to examine the terms of the side deal that will see NTL license the Virgin brand from Mr Branson for a possible GBP10 million ($17.6 million) a year. Fidelity believes that, considering Branson’s 72% stake in Virgin Mobile, his conduct should be examined to see if he acted in a way contrary to the interests of minority shareholders by recommending the takeover.

There are also concerns that NTL is stretching itself financially after its $6 billion acquisition of cable rival Telewest Global. This could leave it open to a counter-bid from a group of private investors that has been tracking NTL for a while.

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