U.S. media tycoon John Malone will pay up and borrow heavily for an asset he wants. Both traits were on display when the 72-year-old’s international vehicle, Liberty Global, bought U.K. cable and Internet provider Virgin Media for $25.5 billion in cash, stock and assumed debt. The $47.87-a-share deal represented a 24 percent premium over the market price when announced in February. Richard Branson, the Virgin brand’s colorful founder, still owned about 2 percent of the acquired company and reaped a reported $316 million. Credit Suisse Group raised $8 billion for Malone, boostingVirgin’s gross debt load to more than 5 times earnings before interest, taxes, depreciation and amortization, according to Fitch Ratings.
The Virgin acquisition capped a decade of purchases by Englewood, Colorado–based Liberty in struggling Europe. Home entertainment is the right investment for hard times, argues Marisa Drew, the co-head of investment banking for Europe, the Middle East and Africa who oversaw Credit Suisse’s end. “Cable has proven to be the ultimate defensive business,” Drew says. As of November 29, Liberty Global’s shares had climbed 26 percent, to $85.81, since the takeover became public on February 5. The deal closed in June.
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London-based Drew was one of two favorite bankers Malone turned to for help with the big transaction. A leveraged-finance specialist, she first worked with Liberty in the early 1990s while at Merrill Lynch & Co. Drew moved to Credit Suisse in 2003; two years later she arranged a debt structure for Liberty subsidiary UPC Nederland that allowed it to relever and pay out dividends to the parent company whenever debt fell below 5 times ebitda. The cash helped fund further acquisitions in Malone’s European shopping spree.
The other key player on the Virgin deal was Aryeh Bourkoff. Formerly global head of media banking at UBS, Bourkoff broke away in 2012 to form New York–based LionTree Advisors. LionTree and Credit Suisse shared $23 million in fees, and Virgin Media advisers Goldman Sachs Group and JPMorgan Chase & Co. claimed a total of $65 million.
Bourkoff hammered out the broader structure of a deal that saw Virgin Media shareholders receive $5.9 billion in cash plus 36 percent of Liberty Global’s equity. Liberty jumped to No. 2 cable provider in the world, after Philadelphia-based Comcast Corp. LionTree has had a hand in three Malone deals. In 2012 the firm arranged Liberty Global’s $585 million purchase of San Juan Cable in Puerto Rico, and in March 2013 it advised on Liberty Media Corp.’s $2.62 billion acquisition of a 27 percent stake in U.S. cable operator Charter Communications.
Raising $8 billion to plow into the mature and highly competitive British media market was “extremely complex” even for a billionaire with Malone’s history, Drew says. The package, knit together in a few weeks with interference from the 2012 holiday season, combined bank and bond market financing in dollars and pounds, including the largest sterling-denominated high-yield bond tranche in history. The extra leverage cost Hampshire, England–based Virgin its investment-grade rating, creating some havoc among the company’s existing bondholders. “Those investment-grade holders were understandably not in a great place,” Drew notes tersely. “But Liberty has a proven track record of operating under a single-B-rated structure.”
($ Millions) *
|1||U.K. bank Barclays follows a £5.8 billion ($9.1 billion) rights issue with a $2 billion hybrid bond offering.||$1832|
|2||Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital pay $27.4 billion to take ketchup maker H.J. Heinz Co. private.||$97–107|
|3||U.S. telecom Verizon Communications agrees to give Vodafone $130 billion for the British carrier’s 45 percent stake in Verizon Wireless.||$93–103|
|4||Founder Michael Dell and Silver Lake Partners privatize U.S. computer maker Dell for $24.9 billion.1||$82–92|
|5||Brazilian phone company Oi and Portugal Telecom agree to a $15.7 billion tie-up under the former’s name.||$70–90|
|6||Cable giant Liberty Global buys the U.K.’s Virgin Media for $25.5 billion.||$882|
|7||Advertising firms Omnicom Group and Publicis Groupe agree to a $35 billion Franco-American merger of equals.||$50–70|
|8||Social media company Twitter launches a $2.1 billion initial public offering on the New York Stock Exchange.||$682|
|9||China’s Shuanghui International Holdings closes a $7 billion buyout of U.S. pork producer Smithfield Foods.||$51–61|
|10||iPhone maker Apple issues $17 billion worth of bonds.||$532|
|* Estimates unless otherwise noted. M&A totals only include advisory fees;|
debt and equity totals only include underwriting fees.
1 Deal value provided by Dell.
2 Publicly disclosed.
|Source: Thomson Reuters/Freeman Consulting Services.|