NTL, Virgin Mobile In Merger Talks - Sources"

LONDON -(Dow Jones)- U.K. entrepreneur Richard Branson will this week launch an attempt to merge his Virgin Mobile Holdings (U.K.) PLC telecommunications unit with NTL Inc to create a GBP4.5 billion communications business, people familiar with the matter said Sunday.

Branson wants to swap his 72% holding in Virgin Mobile for a 14% stake in NTL, the U.K. cable operator which two months ago agreed to buy Telewest Global Inc. for GBP3.4 billion. Following a merger the communications company would be rebranded as Virgin, these people say.

Both NTL and Virgin Mobile declined to comment. But people familiar with the matter say discussions between the two companies have been underway for several months.

These people said Virgin Mobile could make an announcement to the London Stock Exchange as early as Monday, confirming it has received an approach.

A tie-up between the companies would create the U.K.'s first so-called "quadruple-play" communications company, offering fixed line, broadband, television and mobile telephony services all from the same provider.

The combined group would have access to around 2.5 million broadband internet customers, 4.3 million fixed line customers, 5 million mobile customers and revenues in excess of GBP4 billion.

Virgin Mobile has been the subject of takeover speculation in recent months, with press reports linking it with several companies, including Deutsche Telekom A.G. (DT). Its shares closed Friday down 1 pence or 0.3% at 312.75 pence.

Simon Duffy, chief executive of NTL, initiated discussions with Branson "several months ago", a person familiar with the situation told Dow Jones Sunday. Branson has a network of companies spanning telecommunications, retailing and transport which he controls through Virgin Group (VGN.YY), his parent company.

"NTL and Virgin Mobile have a long-standing relationship," one person familiar with the matter said, pointing to the fact that NTL and Virgin Media, a unit of Virgin Group, operated a joint venture in internet service provider Virgin Net. NTL in 2004 bought NTL's stake in the company.

Duffy told reporters on a conference call last month that having a "mobility play" would enhance NTL's business and that NTL was "exploring options about how we would get into quadruple-play".

Branson's interest in entering the cable television industry comes just two months after NTL and Telewest Global agreed to merge.

NTL and Telewest, which operate in different regions of the U.K., were expected to outline strategy and cost-cutting targets in a filing to the U.S. Securities and Exchange Commission this week and are awaiting regulatory clearance for the merger.

The tie-up between the U.K.'s two largest cable operators was broadly welcomed by investors and analysts. Both companies have long struggled due to large debts accumulated while they were building their cable infrastructures and are seen needing to gain scale.

But at the time the NTL/Telewest combination was announced, analysts expressed skepticism that they would be able to compete against rivals in the U.K. including BT Group PLC, the dominant fixed-line telephone operator and British Sky Broadcasting Group PLC, the largest pay TV company in which Rupert Murdoch's News Corp. is a 36.6% holder.

Both companies are diversifying; BT expects next year to move into the television market, while BSkyB in October paid GBP211 million for Easynet Group PLC (ESY.LN) in order to enter the high speed internet and video on demand market.

Separately, a group of private equity groups have been examining a joint bid for NTL. This group isn't firmly set but is reported to include Apax Partners & Co. Ltd., Blackstone Group, Cinven Group Ltd., BC Partners and Permira.

Any deal between Branson and NTL would require the support of William R. Huff, the U.S. investor and restructuring specialist who is the largest existing investor in both NTL and Telewest, with a holding of around 10% in the two companies combined. People familiar with the matter pointed out that Huff is on the board of NTL and say he's likely to want to maintain a holding in the event of a merger with Virgin Mobile.

The Sunday Telegraph, without citing sources, claimed that U.K. based advisers for NTL and Virgin Mobile, Goldman Sachs Group Inc. and Morgan Stanley respectively, had been "largely excluded" from the deal, although Goldman Sachs's New York office was involved. Both banks declined comment.

Company Web site: http://www.virginmobile.com/mobile

http://www.ntl.com

-By Jessica Hodgson, Dow Jones Newswires; +44 207 842 9293 jessica.hodgson@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 4th December 2005