Virgin Mobile board rejects NTL's bid as too low

The proposed take-over of Virgin Mobile by NTL to create a new force in the UK's home entertainment and telephone market has been thrown into doubt after Virgin formally rejected the cable operator's £834m bid.

A statement from the Virgin Mobile board, after the stock market had closed yesterday, said NTL's 323p-a-share offer "materially undervalued" the company. Virgin Mobile shares closed unchanged at 345.5. NTL may have to raise its offer significantly even though some analysts believe that Virgin is already over-priced at 323p a share. NTL refused to comment last night although it is not expected to walk away from the deal at this point.

The rejection of the bid came after the Virgin Mobile board, led by chairman Charles Gurassa, was advised by leading institutional shareholders to hold out for a higher price.

Sir Richard Branson, who owns 72 per cent of Virgin Mobile, has said he is willing to accept NTL's offer in return for shares in the US-listed cable company. He would emerge with a 14 per cent stake in the enlarged group. But he has also indicated he would only agree an offer if it was also backed by Virgin Mobile's minority shareholders.

Virgin Mobile is thought to want a bid of at least 350p a share, although its advisers, JP Morgan Cassenove and Investec, have calculated it is worth as much as 370p to 380p a share.

Fidelity and Morley Fund Management, both of whom own stakes of six per cent in Virgin Mobile, are understood to have rejected NTL's approach.

If the deal goes ahead it would create a home entertainment giant with 10 million customers offering television broadband internet access and fixed and mobile telephony. This so-called "quadruple play" is the model being adopted in the US market where there is growing convergence between telephone and media companies. NTL would re-brand its services under the Virgin name hoping to capitalise on a better-known and more-respected brand.

Some analysts questions whether Virgin's customers, who are mainly younger people on pre-pay contracts, would take up NTL's cable services.