Outlook: Cable's flexible friend finally comes to the altar

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The Independent Online
IF UNITED News and Carlton is a marriage made in hell, the union of Telewest and Flextech seems on the face of it to be the very reverse. A neater fit of pay-TV distribution and content would be hard to find, while in Microsoft and Liberty Media, the two even share common corporate investors. Shared directors, both past and present, and an existing close relationship operationally would seem to complete this picture of corporate harmony. They seem so ideally suited to one another that it's a wonder it has taken them so long.

Two events help explain the sudden rush into each other's embrace. The first is NTL's proposed acquisition of Cable & Wireless Communications, now before the Competition Commission. Telewest wanted to do the C&W deal too, but was eventually eased out of the picture by NTL's Barclay Napp. If cable is eventually going to consolidate into just one company, Telewest needs a deal, so that it can negotiate the process from a more powerful base. The reference of NTL's takeover provides a quite unexpected breathing space and window of opportunity.

The same applies to Flextech, which as a pure and smallish content provider has always looked too much out on a limb to survive as an independent for long. The United/Carlton deal is proving a catalyst for further consolidation of the media, and Flextech is jumping aboard the bandwagon. Already, Flextech provides some 26 per cent of basic, non-premium, pay-TV content in Britain, judged on viewing figures. It also has some highly promising new media and interactive TV investments. The fit, as can be seen, is near perfect, providing, as it does, a strong counterweight to BSkyB both in strength of content and the distribution platform.

Indeed, in terms of distribution, the combination might eventually become more powerful than Sky, given cable's broadband advantages over satellite. Of course, if the Government can refer NTL's bid for C&W to the Competition Commission, then it can certainly refer this one as well, the more so as Sky will almost certainly demand it. There are other potential obstructions too. At this stage it is unclear who is in the driving seat. Is it the two big US corporate shareholders, is it Adam Singer, chairman of Flextech, or could it even be Tony Illsley, chief executive of Telewest?

Presumably it has to be the former. John Malone's Liberty has nearly 22 per cent of Telewest and 34 per cent of Flextech, while Microsoft is sitting on nearly 30 per cent of Telewest and 7 per cent of Flextech. No deal can happen without their agreement. However, both bride and groom have sizeable outside shareholder interests too, and by the same token no deal can happen unless the terms are seen to be fair.

This is where the problems could set in. Flextech may be the smaller of the two loss makers by some way, but it also has the more "sex" appeal by a good way too, and its boss, Mr Singer, will want to wear the trousers in any marriage. With the shares rising like a rocket, there's plainly a danger Flextech will price itself out of the market. Still, the partnership is all but consummated already, and there's every chance of a successful conclusion.

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