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Last Updated: Monday, 2 July 2007, 18:55 GMT 19:55 UK
Q&A: Virgin Media takeover
Model promoting Virgin Media's relaunch
Virgin Media has three million TV subscribers

Virgin Media is the subject of a takeover bid by US private equity firm Carlyle.

It is the latest in a string of bid approaches which have resulted in private equity firms taking control of top UK companies.

Private equity's increasingly powerful role in the British economy is controversial, with MPs investigating whether the sector needs tighter regulation and to pay more tax.

What are the details of the Virgin bid?

Carlyle Group has offered to buy Virgin Media - formed by the merger of cable TV operator NTL and Virgin Mobile last year - for about 5.6bn or $11.5bn including debt.

If the bid is successful, it would be the second largest private equity takeover of a British firm after high street chemists Alliance Boots, bought by Kohlberg Kravis Roberts earlier this year.

What is the logic behind the bid?

Analysts say Virgin Media, whose shares are listed in the US rather than the UK, is undervalued compared with similar US businesses.

As a result, they say, Carlyle believes it can make the business more competitive and profitable, generating a high level of return on its investment.

Virgin Media has had a difficult time since the merger, becoming embroiled in a bitter legal dispute with chief rival BSkyB over the cost of carrying Sky TV channels on its platform.

The dispute is unresolved and is costing both companies a lot of money.

Analysts say by taking the business private, it may be easier for Carlyle to invest in growing the company and its various services - TV, broadband, fixed-line phone and mobile phone.

What does Virgin think of the bid?

Virgin has confirmed that it has received a proposal to buy the company, which it said it would consider as part of a review of the business.

The group did not name the bidder or give any further details about the offer, saying that the proposal would be withdrawn if its terms were publicly disclosed.

It insisted no negotiations had been entered into with the bidder, and gave no guarantee that any transaction would result and, if so, at what price.

But the company did confirm it had appointed investment bank Goldman Sachs to advise on its options, which could include a sale.

It is thought the bank will take about six weeks to compile a shortlist of serious bidders.

This could include other private equity firms and maybe, other media and technology firms.

Where does Sir Richard Branson fit into all this?

Sir Richard is Virgin Media's largest shareholder and has been at the forefront of its battle with BSkyB in recent months.

It is thought the tycoon would like to retain a stake in the business even if it is sold.

By doing this, he could maintain some influence over a business closely linked to the wider Virgin brand, as well as a financial stake in its success.

What will it mean for Virgin customers?

It is not clear at the moment what the impact of any deal would be for Virgin customers.

However, any new owner will want to retain existing customers and attract new ones which could see improvements in programming and changes to pricing.

What is private equity?

Private equity refers to how investment companies raise the funds they use.

Instead of going to the stock market and selling shares, they raise cash from private sources, borrowing money from banks, or pooling groups of smaller investors in equity funds.

The companies then often add their own funds, and use the money to buy companies that they have identified as underperforming, but with the potential to do far better.

Many of the firms they buy are listed on the stock market and are then withdrawn so that the private equity firm can try to turn the business around and sell it on at a future date.

Carlyle Group, which numbers former British Prime Minister John Major as one of its senior executives, has investments worth more than $58bn.

What are the main concerns about private equity?

One of the big objections to private equity is the tax breaks given to the industry.

The most controversial is the tax on what is known as the "carry".

Private equity executives pay taxes on their basic pay and bonuses, but a large part of their income comes from carried interest - the carry - which is the 20% slice of profits they can claim once they have paid back their investors.

This money is classed as a capital gain and, as such, is subject to a tax level of 10%.

Critics say it should be charged at a normal tax rate.

Boots sign
The Virgin deal would be second only in size to the Boots takeover

This is an emotive subject, with one private equity boss saying that some of the richest men in Britain were paying tax at a lower level than the cleaners who tidied their offices.

There is also concern about the huge amount of money made by equity bosses on big deals such as the proposed 6bn merger between the AA and Saga.

What are the positive arguments for private equity?

A key question is whether private equity really benefits the firms it buys.

Private equity firms usually look for a profitable sale within three to seven years.

As they do not have to keep shareholders happy or meet stock market disclosure rules, private equity firms argue that the companies they control are more able to make difficult or long-term decisions.

Gordon Brown has praised their ability to create jobs quickly and contribute to the economy.

What are the arguments against private equity buy-outs?

Critics maintain that these firms are guilty of "asset-stripping" - sacking people and selling off property, having used too much debt to finance their deals.

One example cited is the employee of firms such as Birds Eye which were bought out and subsequently saw hundreds of job cuts made.

And there are also worries about whether private equity firms will fully fund pension scheme obligations, an issue that came up during the Alliance Boots takeover.

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