Telewest in pounds 428m Cable London buy

TELEWEST, the number two UK cable company, last night unveiled a surprise rights issue after it agreed to pay pounds 428m in cash, for the 50 per cent of Cable London held by its arch-rival NTL.

Telewest and NTL agreed last year to a "shoot out" to determine which company would buy out the other's 50 per cent half interest in Cable London. The unusual procedure saw NTL nominate the price, leaving Telewest the option to buy the stake or sell its own 50 per cent interest.

Telewest will finance the buyout via a 1-for-11 rights issue at 213p per share, a 17 per cent discount to its close last night at 256p, up 5.75p, in heavy volume of 14.6m shares.

Microsoft, which is acquiring 29.9 per cent of Telewest from MediaOne Group, and Liberty Media, which holds a 21.6 per cent stake, pledged to back the rights issue and take up any rights not exercised by existing shareholders.

Cable executives observed recently that John Malone, head of Liberty and the founder of Tele-Communications, the biggest US cable company which is now part of AT&T, was determined to extract revenge for having lost Cable & Wireless Communications to Barclay Knapp, chief executive of NTL.

Since being outmanoeuvred over CWC by NTL, the Telewest management has stressed that the company has the scale and finances to remain independent.

"It's an attempt to show that they will pursue an independent strategy, but this is an expensive way to pursue that strategy," said Terry Sinclair, an analyst with Salomon Smith Barney. He estimated that the 50 per cent stake was worth about pounds 350m.

Cable London's network covers about 90 per cent of the 440,000 homes and 40,000 businesses within five boroughs of north London - Camden, Islington, Haringey, Hackney and Enfield. Yesterday's move increases the number of households in Telewest's franchise areas to 6.1 million.

In 1998, Cable London had revenue of pounds 70m and pounds 16m of operating cash flow with net operating losses of pounds 7.6m. Both NTL and Telewest have blamed the dual ownership structure for Cable London's poor market share, which at just over 20 per cent of eligible homes trails well below the near- 30 per cent average that cable companies have achieved nationally.

"This will significantly expand our footprint in the capital, said Tony Illsley, the chief executive of Telewest.

The rights issue is expected to close in early October. The purchase of the Cable London interest is expected to close within 90 days.