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May 15, 2007

Virgin Media Shareholder Speaks Out

In an SEC filing yesterday, Franklin Mutual Advisers indicated that it is seeking talks with management and other shareholders of Virgin Media (VMED) in light of VMED’s recently released first quarter results. Franklin owns 9.8% of VMED but has only modestly added to its position recently according to the filing. Here is the key passage from the 13D:

“FMA purchased the Common Stock in the ordinary course of business for its advisory clients for the purpose of investment. In view of the results for the first quarter 2007 announced by the Issuer on May 9, 2007, FMA may initiate discussions with the Issuer regarding, among other things, the Issuer's strategic direction, corporate governance and management, and to communicate from time to time with the Issuer's executive management and board of directors and with other holders of the Common Stock regarding such matters.”

I sold my position in VMED last year because I felt that the company would have trouble producing any meaningful growth in revenue and operating cash flow due to the intense competitive environment in the UK for the cable, telephone, high speed internet, and wireless telephone. Since my sale the competitive environment has worsened....

VMED is a cheap stock that has been approached by private equity previously about a buyout near $30. When I was chatting with one of my key contacts on the stock following the company’s 1Q report last week, we discussed the fact that the worse the stock acted the more likely it was that private equity might return with a new overture to the Board.

I am not sure where Franklin is headed or if they can push the Board toward a shareholder friendly transaction but I expect the shares will be up today and rumors about possible deals will resurface. Management backed by VMED’s largest shareholder, Richard Branson, has brushed off private equity overtures in the past. Will the mixed 1Q results and guidance for across the board subscriber losses in 2Q be enough to shift the Board’s position? I don’t know but if private equity came back I would be shocked if the bid was north of $30 given that the company’s prospects look worse than they did a year ago when $30 was supposedly on the table. If $30 were on the table today would management, the Board and Branson react differently? Again, it is impossible to know but for the time being downside protection against the poor 2Q has firmed up considerably.

Posted by Steve Birenberg at May 15, 2007 08:20 AM in NTLI