City confirms $8bn Carlyle Virgin Media bid

City sources confirmed yesterday that the private equity house The Carlyle Group is mulling making a formal, nil-premium $8bn (£4bn) bid for Virgin Media Group, the cable television and communications group formed by the merger of NTL and Telewest.

Virgin Media has been the subject of takeover speculation for some time, and a host of private equity names, including Providence, The Blackstone Group and Kohlberg Kravis Roberts are thought to have approached the company in the past 12 months. News that Carlyle is poised to make its offer formal could spark a bidding war for Virgin Media, which has appointed investment bank Goldman Sachs to advise on its options.

The sources confirmed that the talks are at a very early stage and that, contrary to reports, this is the first time that Carlyle has made any approach to Virgin Media.

The British cable television industry has been something of a basket case since NTL and Telewest began investing billions of pounds in cable in the early 1990's. However, despite its well-publicised problems, a consortium of private equity bidders is thought to have made an informal approach last year to Virgin Media that valued the company at approximately $10bn.

News of a bid for Virgin Media follows swiftly on the heels of a disappointing set of results in May that prompted Franklin Mutual Advisors, the company's largest single shareholder with 9.4 per cent of the stock, to demand a meeting with management. Franklin is thought to be concerned not only with the performance of the company but it also sought clarification regarding an ongoing spat with the broadcaster BSkyB.

Virgin Media lost nearly 50,000 fixed-line telecoms customers in the first quarter and failed to resolve a dispute with BSkyB that led to the broadcaster withdrawing its channels from Virgin's cable television package. Unless there is a surprise resolution, Virgin Media will face BSkyB in court next year, with Virgin alleging that the broadcaster abused its monopoly position by demanding a 70 per cent price hike for its package of basic channels.

One City source, who declined to be named, said yesterday: "It is not surprising that a private equity company is making a move. Virgin has not performed well and a change of management could be just the what the company needs to patch up the BSkyB dispute. Even if there is not much premium on offer, another bid is almost a certainty and investors might be tempted by a get-out option before Virgin Media customers who want their Sky channels desert in their droves."

Although shares in Virgin Media may get a boost this morning, the stock has performed badly against a rising market so far this year. Thanks to the poor results and the BSkyB dispute, the shares have lost more than 15 per cent of their value against a FTSE 100 that is up 5.6 per cent.

Telecommunications and cable assets have been in demand from large buy-out houses and there have been a number of multibillion-dollar deals with private equity in the past two years. A Canadian consortium agreed yesterday to pay C$51.7bn for BCE, the former national telecoms carrier of Canada.

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