The six months that led to Liberty’s Virgin deal

Mike FriesA social occasion in August 2012 was the starting point for a six-month courtship that was to lead to the acquisition of Virgin Media by Liberty Global.

Filings made with the US Securities and Exchange Commission reveal the instigator to be Aryeh Bourkoff, CEO of investment bank LionTree, who had invited Virgin Media chairman James Mooney and Liberty Global CEO Mike Fries to join him for the evening on August 22, 2012.

The possibility of a merger between Virgin and Liberty was discussed, but did not go so far as to reach financial terms. The next day Mooney reported the conversation to the Virgin Media board and a financial prospectus was drawn up.

However, the Virgin Media board was confident of the cablenet’s ability to maintain its independent status, telling Liberty Global it was not for sale, but would consider a proposal if it included a “compelling valuation”.

Notes from an August 29th meeting reveal that Virgin Media CEO Neil Berkett had already informed the board of his intention to step down before December 31, 2013, and that a search for a successor was already underway. The purpose of the meeting was to consider if there would be any conflict of interest if Berkett needed to negotiate on behalf of Virgin.

Over the next few weeks Liberty Global built its offer for Virgin Media, until on January 1 when Fries called Berkett to outline the financial terms of a revised transaction proposal. Liberty Global was prepared to offer a consideration mix of 70% stock and 30% cash.

Although he said he was not enthusiastic about the proposal Berkett said he would discuss with the board of directors and the next day Berkett wrote to Fries explaining that Virgin was prepared to move swiftly to reach a deal.

On January 22, Fries met Berkett for dinner in Zurich when the continued use of the Virgin Media brand was discussed. They also spoke about the fact that Virgin Media would not accept a financing condition in the merger agreement and the placement of a Virgin board member on the Liberty Global board of directors.

Berkett will leave Virgin Media with $86.8 million (€66.7 million) when he steps down following the completition of the deal. In addition he will take $19.6 million in cash and stock in severance pay.

The takeover was announced on February 6th.