Virgin Media posts 8th quarterly loss; sale stalls on debt market

Wed, 08/08/2007 - 8:20am
Emeka Obiodu, World Markets

Copyright 2007 World Markets Research Limited
All Rights Reserved

Turmoil in the global debt market has forced a rethink of the planned sale of Virgin Media.

The United Kingdom's only significant cable operator, Virgin Media has posted an eighth straight quarterly loss as customer churn to key rivals takes its toll. Virgin Media said its second-quarter net loss narrowed to $241.39 million from $398.7 million a year ago, as it lost 40,000 TV customers in the quarter due to the removal of several TV channels from the Virgin Media package. Overall, Virgin Media lost 70,000 TV customers in the quarter although it won 45,800 net new broadband customers and 52,800 new mobile customers in the quarter.

Meanwhile, Virgin Media's planned US$11.1 billion sale became the latest victim of the turmoil in the global debt market as the company announced it was delaying the auction process to await more favorable debt conditions. Dow Jones reports that Virgin Media had planned an initial first-round bid deadline for this week, but uncertainty in the credit markets has raised concerns that some private equity bidders may not be able to raise debt financing.

In a statement, Virgin Media said potential strategic and financial counterparts have continued to confirm a strong ongoing interest in the sale. However, "to enhance shareholder value, Virgin Media's financial advisers have recommended that Virgin Media extend the process until these parties can complete their proposals in a more stable debt market environment," the company added.

Despite a fervent campaign to turn around the company's operations, Virgin Media is still playing second fiddle to its key rivals. On the telecoms side, Virgin Media surrendered its top position as the United Kingdom's leading broadband provider earlier in the year to BT. Similarly, Virgin Media has failed to close the gap between it and satellite pay-TV provider BSkyB, which has even managed to poach customers away from Virgin Media.

A change of name earlier in the year to Virgin Media was expected to revamp the company, doing away with the bad customer-service reputation of NTL and repositioning the company to take on the market. Instead, and despite becoming the United Kingdom's first quadruple-play provider, the fortunes of Virgin Media have not boomed. Given the continued impact of the removal of some BSkyB TV channels on Virgin Media's prospects, the outcome of the ongoing legal feud with BSkyB may prove a critical factor for the future of Virgin Media, both financially and with the possibility of a takeover.

Virgin Media's decision to put off its planned sale exposes the lack of a really strong strategic reason behind the company's sale. Many of Virgin Media's suitors are private equity players with financial motives and they have been inevitably caught up in the ongoing global debt turmoil. Ongoing volatility in the global debt market has already affected other private equity-led takeovers and there is no guarantee that the situation will abate soon. Virgin Media's latest position could also have been encouraged by unconfirmed press reports earlier this week suggesting that several private equity firms are pulling out of the deal. So far, strategic investors have been limited. Cable giants Liberty Global and Comcast have reportedly signaled their interest to take over Virgin Media although private equity firm Carlyle, which initiated the takeover process, remains the key contender.


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