NTL/Telewest merger proposed

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The Independent Online

UPC, the Dutch cable television company, is working on plans for a complex asset swap deal that would bring about the merger of Britain's two rival operators, NTL and Telewest.

UPC, the Dutch cable television company, is working on plans for a complex asset swap deal that would bring about the merger of Britain's two rival operators, NTL and Telewest.

UPC, which controls 25 per cent of Telewest, is ready to give its stake to NTL, a move likely to be copied by Microsoft, which owns another quarter of Telewest. The plan, already outlined to some of UPC's investors, would mean that NTL would be required to bid for the remaining 50 per cent of its rival to cement the merger.

UPC and Microsoft will in return receive NTL's European assets, its Swiss operation being especially prized by UPC to reinforce its pre-eminent position in the Continental cable market.

The main obstacle to a deal is Telewest's share price, which slid to less than half the equivalent price UPC paid for its shares in June. UPC is thought to be unwilling to swap its undervalued Telewest shares for NTL paper, which is considered by analysts to be more expensive. Telewest shares have been undermined by, among other things, the revelation of a bottleneck in the supply of its set-top boxes.

The deal is likely to go through on the say-so of John Malone, the American media mogul who effectively controls UPC. Last week, Dr Malone demonstrated his influence when his Liberty Media investment group announced a deal with News Corp that will leave him with a 20 per cent stake in Rupert Murdoch's media empire. Liberty Media owns stakes in cable companies around the globe and is renowned for pulling strings behind the scenes to encourage consolidation activity.

A merger of NTL and Telewest has long been the ambition of cable investors eager for the companies to compete more effectively with the UK's digital television groups, BSkyB and ONdigital.

One analyst said: "If networks are spread out, it makes them much less efficient for marketing and networking purposes."

The deal would also require the approval of France Telecom, a major shareholder of NTL. However, the French group is also thought to be keen for NTL to exchange its Swiss interests for greater influence in the UK.

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