Only three bidders still in Videotron auction

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Only three serious bidders remain in the frame for a pounds 400m controlling stake in Videotron, a leading cable operator in the UK, sources close to the auction said yesterday. They are UK cable operator International CableTel, Deutsche Telekom, the giant German telecoms operator, and Bell Cablemedia, which already holds a 26 per cent stake in Videotron.

Cable & Wireless, the telecoms company that owns Mercury Communications, remains on the sidelines, the sources said, and could return to the fray depending on the outcome of negotiations. KPN, the Dutch telecoms company, is believed to have withdrawn.

It is also understood that lawyers for Bell Cablemedia have conceded the company does not have a pre-emptive right over the 56 per cent stake in Videotron Holdings put up for sale by Montreal-based Videotron, the Canadian cable giant. Therefore, the company's chances of winning the auction are put at just one in four, a senior Videotron source said.

Industry sources add that if Bell Cablemedia does not buy the stake, doubts will grow about this company's commitment to the UK market. The sale, which is still several weeks from completion, is a further move toward consolidation in the UK cable industry, following the purchase by General Cable of a minority interest in Yorkshire Cable earlier this year and the merger between market leader, Telewest Communications, and SBC CableComms last year.

Analysts had been expecting further moves in the business, which recently returned to market favour following several months of bad publicity.

Videotron Canada, which is looking to shift its attention to the newly liberalised US market, is demanding cash only - a position that favours the deep pockets of Deutsche Telekom, which has a stake in the domestic cable market, but no investment as yet in Britain.

All three finalists, however, believe Videotron is asking too much. "We think the valuation is far too high, there is still a lot of negotiation to come," said a source at one leading bidder.

The attractions of the Videotron franchises, which range from the City to the Thames Valley, are obvious, analysts say, but the company has been undermanaged and dogged by customer complaints. Further, it still has most of its network to build, as part of the pounds 10bn UK cable investment.