Virgin Mobile board to reject NTL takeover offer as too mean

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The Independent Online

The board of Virgin Mobile is set to reject the £834m bid tabled yesterday by the cable operator NTL after being told by institutional shareholders that the offer is too low.

NTL is proposing to pay 323p a share - a premium of just 4 per cent to Virgin Mobile's closing price last week. But the board of the company is expected to hold out for at least 350p a share, which would value the business at £903m.

Estimates by Virgin Mobile's brokers, JP Morgan Cazenove and Investec, value the company at as much as 370p or 380p a share. "This clearly isn't a price which excites anybody," one source close to the company said. Virgin Mobile shares closed at 342.5p last night, up 31.5p.

A rival bid for Virgin Mobile was seen as unlikely after T-Mobile ruled out making an offer and pointed out that it could veto any approach from another mobile network.

The formal rejection of NTL's bid is expected either today or tomorrow and comes despite the readiness of Sir Richard Branson to vote Virgin Group's 72 per cent holding in Virgin Mobile in favour of the offer.

Sir Richard, who would take NTL stock in return for his shares, emerging with a 14 per cent stake in the enlarged company, has made it clear, however, that he would proceed only if the minority shareholders in Virgin Mobile were also happy.

Fidelity and Morley Fund Management, which each own about 6 per cent of Virgin Mobile, are understood to have said the NTL bid is inadequate. The company's other big institutional shareholders include Aberforth, JP Morgan Asset Management and Legal & General.

Reaction to the deal was mixed, with some commentators arguing that NTL was overpaying, even at 323p a share, for a business which is just a virtual mobile operator and generates about half the revenues per sub-scriber of bigger rivals such as Orange and Vodafone.

The research consultancy Ovum, meanwhile, highlighted the "serious challenge" for the NTL management of integrating Virgin Mobile on top of its merger with the rival cable operator Telewest. "Remember what happened to AOL and Time Warner," it said.

In a clear hint that it was likely to reject NTL's opening shot, the Virgin Mobile board, led by the chairman Charles Gurassa, said it would be " mindful of its duty to maximise value for all shareholders" when it came to give its response.

Advisers to Sir Richard have impressed on him that if Virgin Group were to press ahead and steamroller the deal through against the wishes of minority shareholders, then he would find it very difficult to float other Virgin businesses on the public markets.

If NTL offers an acceptable price and the deal goes through, it will create a business with 10 million customers offering the so-called "quadruple play" of fixed and mobile telephony, broadband internet access and television. NTL's services would be rebranded under the Virgin name and, in return, Virgin would gain access to the 5 million homes served by the cable operator.

Analysts pointed out that many of Virgin Mobile's users were people with low disposable incomes on pre-pay deals and were unlikely to be capable of or interested in buying telephone and broadband from NTL.

NTL, however, is thought to believe there would be scope to generate additional revenues by selling Virgin mobile services to its existing cable customers.

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