Carlyle Group in Talks to Acquire Virgin Media

By Michael J. de la Merced and Julia Werdigier
The New York Times

Sunday 01 July 2007

The Carlyle Group is in discussions with Virgin Media, the British cable company whose largest investor is Richard Branson, over a potential bid worth around $20 billion, a person familiar with the negotiations said today.

The talks are still early and may not lead to a bid, this person noted.

As the coffers of American buyout firms have swelled over recent years, the firms have become more aggressive in seeking out targets beyond the United States. On Saturday, two American private equity firms partnered with the Ontario Teachers' Pension Plan to win Bell Canada, that country's largest telephone company, for 51.7 billion Canadian dollars ($48.8 billion), the largest leveraged buyout ever.

Earlier this year, several private equity firms banded together to make a £10 billion offer for J Sainsbury, Britain's third-largest grocery chain. But those firms eventually dropped out after the founding Sainsbury family demanded more money.

And last year, a group of private equity firms, including Providence Equity Partners, the Blackstone Group, Kohlberg Kravis Roberts and Cinven, held talks with Virgin Media about a possible $15 billion bid.

Reports in the British news media over the weekend said that Providence might be interested in making another offer for the company.

A spokeswoman for Virgin Media declined to comment.

The offer for Virgin Media, said to be worth about $19.6 billion including debt, could be among the largest ever in Britain. Last month, Alliance Boots, the pharmacy chain, agreed to an £11 billion ($21.8 billion) offer from its deputy chairman and Kohlberg Kravis after a bidding war.

Virgin Media lost customers earlier this year after it stopped showing several channels of a rival, British Sky Broadcasting, that carried programs like "Lost" and "Battlestar Galactica."

The channels were dropped as the result of a battle between Virgin Media and BSkyB, the satellite broadcaster controlled by Rupert Murdoch, over fees during negotiations to renew a distribution agreement.

Some analysts have said that Virgin Media is struggling to compete in an increasingly saturated market where customers can choose between several package deals that include mobile phones, Internet and television. Last year, the BT Group, Britain's biggest phone company, started offering an online-based television service, linked to its telephone and Internet offerings.

Virgin Media is also still integrating the acquisitions Telewest and Virgin Mobile Holdings. The company changed its name from NTL in February and invested in a large marketing campaign that included television advertisements starring the actress Uma Thurman.

Virgin Media in May reported its seventh consecutive quarterly loss after subscribers defected to rival BSkyB. The loss widened to £120.3 million ($241.7 million), compared with £119.9 million a year earlier.

Franklin Mutual Advisers, one of Virgin Media's largest shareholders, said that it was considering being more actively involved in the company's management decisions after the disappointing results. Franklin Mutual said it might seek talks with the company on its "strategic direction, corporate governance and management" and might also contact other Virgin Media shareholders.

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Michael J. de la Merced reported from New York and Julia Werdigier from London. Jenny Anderson contributed reporting from New York.