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SBD Global/February 7, 2013/Media

Liberty Global Will Retain Virgin Media To Create Europe's Largest Communications Company

Virgin Media "is planning to issue one of the world’s largest junk bonds since the end of the financial crisis to help fund" its $23.3B acquisition by John Malone’s Liberty Global, according to Stothard & Budden of the FINANCIAL TIMES. The U.K. cable operator is set to borrow £2.3B ($3.6B) in bonds and another £2.3B worth of loans in the coming weeks, "loading more debt on to Virgin Media but reducing the financial burden of the deal on Liberty Global." The high yielding junk bonds, which are issued by companies seen to be at greater risk of default than investment grade groups, "are likely to receive attractive terms when they price this week." Strong risk appetite "has pushed junk bond yields to all time lows" of below 6% this year. However, this did not stop Moody’s and Standard & Poor’s "placing Virgin Media under review for downgrade on Wednesday," with Moody’s saying that it "expected its senior debt to lose three notches and fall into junk territory." The deal "will create the largest broadband communications company in Europe" with 25 million customers across 14 countries. Liberty Global said that it plans to save $180M from the two companies’ combined annual operational and capital expenditure budgets. Liberty Global CEO Mike Fries "played down expectations of a bidding war against BSkyB," the U.K. satellite broadcaster, for prized content such as live football rights, saying that the cable operator "would not bid for premium content" (FINANCIAL TIMES, 2/6).

GOING GLOBAL: Liberty Global's acquisition of cable operator Virgin Media follows its significant investment in German cable in '09 and '11 and establishes the operator as the largest cable company in Europe. Analysys Mason senior anaylst Cesar Bachelet said that the acquisition brings benefits to both parties. Increased critical mass and resulting economies of scale will give an enlarged Liberty Global even stronger negotiating power with content owners as well as vendors. Liberty Global will in turn benefit from virgin mobile's experience, and success, with deploying mobile services in the U.K (Analysys Mason).
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