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March 10, 2008
Virgin Media Back In Private Equity Game?
The UK newspaper The Observer is reporting that it has seen a new memo outlining possible private equity approaches to Virgin Media. VMED has been a rumored private target for some time and it is generally accepted that private equity made an offer in upper $20s or low $30s over a year ago. VMED is now trading at $14 and the Observer says that a consortium of Providence Equity, Blackstone, Cinven, and KKR is considering a big of $17 to $22. I strongly advocated for management of VMED to take the prior deal and would do the same again. Financing is going to be tricky on this deal unless the PE firms put in a ton more cash than usual. And of course, a memo is far from an offer. As a result if I were long (thankfully I sold my stock at $26 in 2006) VMED and it popped a couple of bucks today, I'd be selling a significant portion of my position.
Posted by Steve Birenberg at March 10, 2008 03:20 PM in NTLI
1.THANKS FOR THE IMPORTANT REPORT ON VMED
2.WHAT IS THE SIGNIFICANCE OF THE SWAPS ARRANGED THIS AM BETWEEN THE US,ECB AND POSSIBLY SOME OTHER COUNTIES[?CANADA,JAPAN ETC.}?
GO to Google News and search on Virgin Media and you will find more details.
If I understand correctly, the Fed is providing liquidity by offering to lend up to $200 billion to banks and primary dealers in Treasuries (big brokers) if those entities put up collateral. Importantly, they can put up mortgages securities as collateral and get 100% loaned against them for 28 days. The size of intervention, the fact that it will temporarily clear the market of mortgage securities, and the fact that is now a 28 day term versus a weak or two before, all indicate that is a more serious attempt. Clearly part of the problem the past week has been the fact that mortgage securities have collapsed in price forcing margin calls and driving some people out of business (Thornburg, Carlyle) and leading investors to question the health of others inlcuding Fannie Mae. Many if not most of these mortgage securities will have minor if any losses. However, they have been trading as though massive losses were coming. By clearing the market of these securities for 28 days, the Fed is hoping that time will heal the market and bring normal prices back to the mortgage market. That won;t prevent a recession but it will drastically limit the risk that the financial system completely crumbles and leads to a broader, longer, and deeper recession.
Posted by: Steve at March 11, 2008 07:56 AM1.IT SEEMS AS IF MICC ,CETV AND THE EMERGING MARKETS ARE NOT SO "SUPER" RECENTLY.IS THIS RELECTIVE OF A DROP IN THE CARRY TRADE OR JUST A INCREASE IN RISK AVERSION?
2.ARE THERE ANY OTHER NEWS REGARDING VMED,CETV ETC.?
1. I think you are on the right track in noting that investors are not as willing to take risk. This means that the rebound in emerging markets is not as strong as we might except solely based on their usual upside volatility when the market rallies. the again, CETV at least is up more than 10% form its Monday low. Once a sustainable uptrend is re-established CETV will go much higher. MICC I do not follow as closely but it seems likely to go higher as well in a new bull phase.
2. CETV presented at a Bear Stearns conferecne yesterday. There was a bit of new news. Here is a summary what I considered new news which I sent to another large shareholder who was unable to listen:
In Garin’s (Michael Garin is the CEO) comments and Q&A I only picked up a few things….
He said they would double through organic growth in “4 or 5 years.” Might be minor but the official guidance is five years.
He noted that they know 80% of their revenue by the end of March and though it has not happened yet if their were a shortfall they had nine months to adjust their cost structure.
Regarding the convert he noted the goal was to have two years of “activity” on their balance sheet. He said this required them to do a $400 million deal. The bankers came up with the idea to raise it to $475 million so they would have the funds for the capped call.
Just prior to Q&A he addressed the Merrill report about Romania’s economy. He said that based on the fact that they have received no resistance to price increases on advertising this year they don’t see a problem for CETV. Further he said based on their on the ground observations and actual trends they monitor in retail sales, Merrill is wrong. Later in Q&A someone asked about Romania and to a room full of laughter, Garin said again that Merrill is wrong.
Maybe most insightful, he said that if they owned and managed Ukraine last year they would have made $50 million EBITDA!
On free cash flow he said they have about $100 million in FCF before capital spending. Capex in 2008 will be about $130 million so no FCF this year but maintenance capex is $65 million and that is where he thought they would be in 2009 when they would be FCF positive after capex again.
FWIW, those last two questions along with one on EBITDA margins sounded like they came form that guy John Kornereich (not sure if I got his name right but I think you know who I am talking about). I couldn’t tell but it sounded like they had a good crowd.