The cable company NTL is poised to come back with a sweetened bid for Virgin Mobile which is likely to see minority shareholders offered 365p to 370p a share in an attempt to secure the backing of the board.
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Advisers representing the companies have been locked in negotiations over the past 24 hours. An improved offer could come today, although talks may spill over into next week.
Under the revised deal, Sir Richard Branson would accept a lower price for his 72 per cent stake in Virgin Mobile, enabling more cash to be made available for the minority shareholders.
NTL’s original stock offer in December was worth 323p a share, with a cash alternative available to minority shareholders. Sir Richard, who is taking NTL stock rather than cash, indicated he was ready to accept the bid. He would emerge with a 14 per cent stake in the enlarged business which would offer the so-called “triple play” of fixed and mobile telephony and television all under the Virgin brand.
Since then, the price of NTL shares has risen, lifting the value of the offer to 358p. Virgin Mobile shares closed 3p higher last night at 368p, valuing the company at £951m. Should NTL offer the minority shareholders 370p, then the bid would cost it £34m more in cash terms than its original offer in December.
The negotiations are being handled on behalf of Virgin by Morgan Stanley, while NTL is being represented by Goldman Sachs. Paulo Pereira, the head of European M&A for Morgan Stanley, is leading the Virgin Mobile team.
Reports last weekend suggested that institutional investors had told the Virgin Mobile chairman Charles Gurassa that the board must hold out for 400p a share. However, that was described as “dreamland” by one source. This week, it was rumoured that NTL was contemplating ditching a takeover in favour of doing a licensing deal with Virgin. But Simon Duffy, the outgoing chief executive of NTL and the architect of the planned merger on the US side, has rejected this, saying he remains determined to put the two companies together.
NTL’s chances of succeeding with its increased offer will depend on the reaction of Virgin Mobile’s two biggest institutional shareholders, Morley Fund Management and Fidelity, both of which almost 7 per cent of the company. Fidelity disclosed yesterday it had added to its stake, buying a further 85,600 shares at 367p, taking its holding to 6.7 per cent. Morley refused to comment on how it would react to a bid pitched at 370p.
This week, another big shareholder Aberforth Partners, baled out, selling its 3.6 per cent stake in Virgin Mobile for 360.5p a share.
If NTL and Virgin Mobile succeed in merging, the combined business will have 10 million customers and will pose a major threat to Rupert Murdoch’s satellite-television company, BSkyB, offering households fixed-line and mobile telephony as well as broadband internet access and television.