Can you recall at the start of 2006 when Virgin Media, Inc. (NASDAQ:VMED) was deemed as in-play as a buyout candidate and then later in 2006 when it looked like a buyout might occur in the $27 to $30 stock price range?  This is the broadband and content company that operates in the United Kingdom.  If you want to go way back in time, it used to be NTL and traded under the NTLI ticker; and the old Telewest is part of it.  It also offers mobile and IP phone services.

In early January 2007 before this changed to Virgin Media, this was Jim Cramer’s #5 Foreign Pick at the time.  It was noted that Virgin owned 10% and he like many others noted that the past $27.00 bid from private equity in the past had been rejected.  At that point the shares had seen a 52-week high of about $31.00 and its market cap was over $8.5 Billion.

Shares are down over 5% today at a new 52-week low of $14.86.  Virgin Media’s 52-week trading range is $15.39 to $30.00 and the market cap at current prices is under $5 Billion.  A couple more days like this and shares will be at half of the old buyout price.

Sure, there has been client turnover, added competition, and the company even had content carrying problems with some key content partners.  It has seen some changes in the board. Regulators want BSkyB to cut its stake in commercial broadcaster ITV, which means that Virgin Media may get to after it again in a bidding.  BSkyB is roughly 39% controlled by News Corp. (NYSE: NWS).

In its November earnings report, Virgin Media narrowed losses by 36% to 61 million pounds ($127+ million at the time) but revenues were down 1.8% on a 13,000 subscriber add to roughly 4.8 million.  It looks like the company had lost almost 120,000 subscribers in the two quarters before.

On a dollar translated basis, it looks like its books are inverted and leveraged like many of the old cable companies inside the U.S. used to be.  With almost $16 Billion in liabilities and a slightly negative tangible book value you can see the leverage. 

It seems this has a lot stacked against it.  We don’t think that with the high debt levels that a private equity firm will go pursue this one with any vengeance.  But we’d also expect somewhat of a floor to come into play if this trades down under $13 or $14 per share as long as the company doesn’t fall into an "at-risk" status. 

Comcast (NASDAQ:CMCSA) recently was hitting 52-week lows as well and News Corp. (NYSE: NWS) is well off its highs too.  So it isn’t alone.  The truth is that someone has to own the content and the delivery platforms.  These don’t stay down and forever, but calling an exact bottom in today’s market would honestly be more guesswork on potential capitulation than it would be omniscient.

Jon C. Ogg
January 7, 2008

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