The cash and stock deal announced late Tuesday creates a company that will provide stiffer competition in the U.K. to satellite TV provider BSkyB, in which Malone's rival Rupert Murdoch's News Corp. owns a 40 percent stake.
Liberty Global and Virgin Media said tie-up will create a broadband communications company covering 47 million homes and with 25 million customers in 14 countries.
Liberty Global has pay-TV operations around the world and is the largest cable operator in most of its 11 European markets.
Liberty Global's CEO Mike Fries said that after the deal, about 80 percent of the company's revenue will come from five countries: the U.K., Germany, Belgium, Switzerland and the Netherlands. The two companies said they had combined revenue of $16.8 billion last year.
Virgin Media is the second-biggest pay TV company in the U.K. after BSkyB, or British Sky Broadcasting Group PLC. Virgin Group boss Richard Branson a multibillionaire, like Malone and Murdoch still holds a minority stake.
The companies said the transaction is equal to $47.87 per Virgin Media share. That's about a 24 percent premium on the closing price of Virgin Media's U.S.-traded stock on Monday.
The stock surged almost 18 percent Tuesday to close at $45.61 after the company said it was in acquisition talks with Liberty Global.
Liberty Global will remain based in Englewood, Colo., while Virgin Media will continue to operate under its namesake brand in the U.K.
Virgin Media shareholders are set to get about 36 percent of Liberty Global's outstanding shares and about 26 percent of the voting rights, the companies said.
They added that they expect about $180 million in annual costs savings once they are fully combined. They didn't say whether any of their employees will be laid off as part of the cost cutting. More details about the companies' plan could emerge during a management conference call scheduled for 8:30 a.m. EST Wednesday.
Liberty Global also said it plans to buy back about $3.5 billion worth of its shares over a two-year period after the Virgin Media deal is closed.