Cable giant rides out of the West: Flotation should value TV company at pounds 1.5bn

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The Independent Online
TELEWEST, one of the biggest cable TV companies in Britain, is planning to float on the stock market later this year in a listing sponsors hope will be large enough to put the company in the FT-SE 100 index of leading shares.

Goldman Sachs and Kleinwort Benson are being appointed joint global co-ordinators for an international offering of new shares expected to raise around pounds 400m and value the company at anything up to pounds 1.5bn.

S G Warburg, which was the favourite to get the job, is said to be bitterly disappointed at being shunned for one of the largest flotations to have been attempted outside the big privatisation issues.

Over the last year Kleinwort Benson has had some notable successes in winning international equity issues from Warburg, including the dollars 1bn flotation of VSNI, India's international telecommunications company.

Telewest is by far the most prestigious prize of the three or four cable TV flotations expected to take place this year.

Lazards is understood to have been appointed by Compagnie Generale des Eaux, the French utility, to advise on floating its British cable TV interests, which trade under the name General Cable.

One source said: 'What makes these flotations particularly challenging is that cable TV is still essentially in its start- up phase and is not expected to generate profits or dividends for some years to come. Though the risks are quantifiable and the market is well understood, this is more akin to venture capital than a conventional float.'

Over the past 12 months, the cable TV industry has emerged from the wilderness to become one of the most sought- after investment opportunities in the City. According to a report by NatWest Markets, the cable TV industry is planning to raise around pounds 2bn of debt finance in the City this year.

Telewest is a joint venture between Telecommunications Inc of the US and US West, a large North American telecommunications company. Complicating the picture, Telecommunications Inc is now planning a merger with Bell Atlantic, itself a significant player in the UK cable market.

Telewest is one of the largest cable television operators in the UK, vying with another US company, Nynex, for the number one slot.

The company trades as United Artists, controlling franchises in areas including Avon, Edinburgh, Richmond, Merton in south-west London and Croydon. In all, Telewest controls or has interests in 24 franchises, covering 3.3 million homes.

The company has a series of partnerships including - with Comcast of the US - the Cable London venture which covers Hackney, Enfield, Haringey and Camden.

Along with Compagnie Generale des Eaux, Telewest is a partner in franchises in Windsor and in the west London suburbs of Hillingdon and Hounslow. The company also has a stake in the largest single UK franchise, Birmingham Cable, which includes both CGE and Comcast.

CGE ranks in its own right among the top 10 UK cable operators. Its other partnerships include Yorkshire Cable, a joint venture with Singapore Telecom, and Yorkshire Water. CGE has interests in franchises covering 1.5 million homes.

Shifting patterns of ownership have characterised the cable business in recent months, with 35 per cent of the industry changing hands last year.

Further acquisitions and mergers are expected by the Cable Television Association, although the CTA predicts that buying in franchises will become increasingly expensive from now on.

The driving force behind UK cable investment is the ability of the companies to offer telephony, following the review in 1990 of the BT/Mercury duopoly.

Videotron, the largest London cable company, is planning to offer free off-peak telephone calls within its network, which is at present accessible to 230,000 homes in the capital.

Louis Brunel, Videotron's group managing director, said that the company will raise up to pounds 200m in debt finance this year to further develop the networks.

Videotron, which is owned by Videotron of Canada, Bell Canada and Cable & Wireless, has already invested pounds 267m on building its network.

However, Mr Brunel said that the company would not consider a stock market listing for two to three years.

According to the Cable Television Association there are now more than 600,000 people subscribing to cable television and 300,000 cable telephone lines installed.

The association believes that by the turn of the century well over pounds 6bn will have been invested in cable, covering 75 per cent of households.

The rapid establishment of foreign-owned cable TV companies in Britain has angered British Telecom, which is barred from offering broadcast entertainment down its telephone lines.