NTL and Telewest to tie $12bn knot in dash for July wedding

UK cable companies NTL and Telewest will finally announce a $12bn (£6.8bn) merger later this month to create a pay-television group big enough to take on satellite broadcaster BSkyB.

Sources close to the merger talks say it is "extremely unlikely" that the announcement will be delayed any further. The announcement is expected towards the end of July.

NTL will make a cash and shares offer for Telewest in what will, in effect, be a takeover.

This means that Telewest's shareholders, who swapped their debt for equity to prevent the company going bust last year, will finally see a cash return from their investment. Telewest has not paid a dividend for several years.

Analysts at investment bank UBS predict that NTL will offer $24 per share for its rival, valuing it at almost $5.9bn. On Friday, Telewest shares closed at $22.72.

Many of the big shareholders, such as William Huff, hold stakes in both companies and want the deal to go ahead quickly. Both companies are listed on Nasdaq.

Simon Duffy, the chief executive of NTL, is expected to become head of the combined entity, while his opposite number at Telewest, Barry Elson, could become non-executive chairman.

The companies mostly cover separate areas in Britain, which means the merger is unlikely to be blocked by the competition authorities. Together, they will be able to provide the "triple play" of telephone, broadband and cable television services to over half the population.

Currently, most customers of the companies only subscribe to one or two of these services, but analysts say that a combined entity would be able to market the triple play more effectively.

The companies' broadband services face strong competition from BT and Cable & Wireless's Bulldog.

Around 3.3 million British households watch cable television, which is a long way behind BSkyB, with just under eight million, and Freeview, with five million.

A merger would create estimated savings of £200m a year. Analysts said that a cash-based bid from NTL, which has a relatively low gearing, would allow the combined entity to benefit from the merger more quickly.

Aryeh Bourkoff at UBS said: "Telewest and NTL will want to do this deal sooner rather than later to help them compete against the likes of BSkyB. We expect it will be largely a cash-based transaction, given the strength of NTL's balance sheet. A part-cash rather than an all-share deal also means that the synergies will not be diluted and the new company will be able to expand more quickly."

NM Rothschild is advising Telewest on the merger. Deutsche Bank is advising on the disposal of its content business, Flextech, which will either be sold or spun off after the merger is announced. It includes UKTV, a 50-50 joint venture with the BBC, and the Bravo and Challenge channels.

Telewest and NTL, which is being advised by Goldman Sachs, have decided that a merged group should be a pure cable company. The valuation of the Flextech business has been one sticking point for the deal, with analysts' estimates ranging from £500m to £1.1bn. The final valuation for the merger is likely to be towards the top end of this estimate.