NTL beats Telewest in race to buy CWC cable interests

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The Independent Online
NTL, the Nasdaq-listed cable company which is led by US chief executive Barclay Knapp, was on the verge of winning the pounds 8bn takeover battle for the cable and residential telephony business of Cable & Wireless Communications.

The deal would see NTL leapfrog Telewest to become the biggest UK cable system operator. NTL's networks would cover more than 10 million franchise homes, or nearly one in two British households.

Analysts familiar with the situation said NTL, bolstered by last week's multi-billion pound pact with France Telecom, has tabled an offer estimated to comprise pounds 4bn in cash and pounds 4bn in stock for CWC's residential operations. CWC is 53 per cent owned by Cable & Wireless.

Oddly, Cable & Wireless reportedly agreed to give NTL exclusive rights for a 21-month period until March 2001 to consummate the deal. C&W refused to comment.

Telewest, the second biggest UK operator, which has held talks with Cable & Wireless Communications since April, was surprised by the news. Sources close to the company tried to put a brave face on the set-back, saying it was likely there would be substantial goodwill between Telewest and NTL to achieve a second merger to create one big UK cable operator.

"People who are thinking that Telewest is still in with a chance are being rather brave," said an executive with one of the company's main shareholders.

Any formal deal reached during the current negotiations between C&W and NTL will still require the approval of CWC's five independent directors. They are led by Sir Bryan Carsberg, the former head of the Office of Fair Trading and Oftel. A further uncertainty is whether Bell Atlantic, CWC's second biggest shareholder with an 18.6 per cent interest, can veto a deal should it find the terms unsatisfactory.

The US regional phone company for New England and the east coast has two of the five independent directors, John Killian, former chief executive of pre-CWC cable operator Nynex CableComms, and Fred Salerno, chief financial officer of Bell Atlantic.

C&W's desire to sell the residential business of CWC is complicated by its plans to keep the business telephony and data operations of the company, which used to be known as Mercury Communications. Rather than sell CWC's stock, C&W appears determined to sell assets.

That could maximize carry forward tax losses incurred by CWC since it was created in an earlier wave of cable industry consolidation in 1997. It could also leave NTL with hefty long-term charges to amortize the goodwill acquired in the takeover.

Among fund managers who own most of CWC's remaining shares there was little fear that their rights would be trampled on by C&W's move. "C&W's share ownership is pretty contiguous with CWC and if minority shareholders were badly treated they could sack CW's board," said one fund manager with a 3 per cent stake.

He added that NTL wasn't as attractive as Telewest to UK institutions. "NTL is Nasdaq quoted and is not therefore that attractive to UK funds. A successful takeover would lead them to sell and that wouldn't be good for NTL shares."

CWC shares lost 6.5p to 725p, while CW ended up 12p at 827.Telewest lost 11.75p to 293.75p and NTL was up $3 at 104 5/16 in late US dealing.

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