Branson brokers £930m NTL-Virgin merger

The takeover of Virgin Mobile by the UK cable operator NTL is set to go ahead after Sir Richard Branson brokered a £930m deal between the two companies last night.

NTL tabled an increased offer yesterday which is worth 372p a share to Virgin Mobile's minority shareholders. But Sir Richard has agreed to accept less than that for his 72 per cent stake to bridge the difference in price between the two sides.

The Virgin Mobile board was meeting last night to examine the offer and was expected to issue a statement saying it had agreed to open its books to allow NTL to carry out due diligence.

The original NTL offer, tabled in December, was worth 323p. Although Sir Richard backed it with his 72 per cent shareholding, which he plans to exchange for stock in the enlarged company, the offer was swiftly rejected by the Virgin Mobile board for significantly undervaluing the company.

The latest offer is worth 360p but Sir Richard will make up the difference by accepting cash for between 10 and 20 per cent of his stake and then using some of the money to pay the extra 12p to minority shareholders.

That means his stake in the enlarged NTL/Virgin Mobile group is likely to emerge at about 12.5 per cent compared with 14 per cent under the original deal. However, he will still be the biggest single shareholder in the company, which will re-brand itself using the Virgin name to offer the so-called "triple play" of fixed and mobile telephony and television.

One source said last night: "This is as far as Richard is prepared to go to get the deal done. Barring another bidder coming in, it looks like the merger will now go ahead."

The outcome will rest with Virgin Mobile's two largest minority shareholders - Fidelity and Morley Fund Management - both of which hold about 7 per cent of the company. But it was thought likely they would accept NTL's latest terms if, as expected, the offer is formally recommended by the Virgin Mobile board.

At 360p, Virgin Mobile is valued at £930m. Its shares closed last night at 371p - up 3p and fractionally beneath the price being offered to minority shareholders. NTL's shares, meanwhile, slipped by about $1 to $66.5.

Sir Richard has been determined from the beginning to drive through the merger, which will present a serious competitor to BSkyB in the UK market. BSkyB shares fell 6.5p yesterday to 513p.

He had been negotiating the deal in secret with NTL's chief executive Simon Duffy for nine months until news of the planned merger was leaked in December.

Throughout the talks, the Virgin chairman has been strongly advised not to try to bulldoze a deal through against the wishes of the minority shareholders because of the damage it would do to his standing in the City. It is likely that Sir Richard will want to bring some of his other Virgin companies to the stock market in coming years.

The combined NTL/Virgin company will have 10 million customers receiving fixed and mobile telephony, broadband and television. Most analysts see the deal as a great one for Sir Richard but are less certain of the benefits for NTL. The US-listed cable company will inherit the Virgin brand but analysts are sceptical of how many of Virgin Mobile's five million customers will take NTL's television, broadband and fixed-line package as they are mainly young people on pre-pay tariffs.