Mogul battle hampers Telewest rescue

Bankers' attempts to wrest power from a US tycoon are delaying debt restructuring at the cable group

UK cable company Telewest is locked in negotiations with US cable tycoon John Malone to try to reduce his control over the company. The talks are contributing to a delay in restructuring plans that will see £3bn of debt cancelled in return for diluting shareholders' interests.

The company had hoped to have completed the restructuring by the end of March, but it could now be as late as the end of June, say company sources.

Mr Malone has "relationship agreements" with Telewest that give him certain vetoes over the company's actions, such as the appointment of the chief executive, the extension of the board, acquisitions and the level of borrowing.

Mr Malone owns 20 per cent of the company's shares through Liberty Media. He also owns bonds, and after the restructuring his stake will be diluted to 11 per cent. It is understood that the banks and bondholders are arguing that he should cede his veto rights, as it will give him unfair control over the company.

However, it is important to stay on good terms with the media mogul, as he is a large investor, and shareholders must approve the restructuring plans before they can go through. Mr Malone owns investments in broadband and cable around the world, including the Discovery Channel and QVC.

A spokesperson for Telewest confirmed the presence of the vetoes but declined to comment on negotiations. However, it is believed that there is hope for a breakthrough. The vetoes only apply if Mr Malone's stake rises above 15 per cent, and therefore he would have to invest more to be able to use the vetoes.

Other issues delaying completion are a compromise with Deutsche Telekom, which has a £293m convertible bond due this November and had hoped for preferential treatment. Four banks, including Crédit Agricole, are also in dispute over £33m they are owed over foreign exchange deals. However, the company has secured a £2bn lifeline from the banks, which will give it room for manoeuvre when it finishes the talks. The debt restructuring of fellow UK cable company NTL also took longer than expected, and with a large group of diverse interests, the talks are understood to be particularly complex.

Tomorrow, Telewest reports full-year results and is expected to follow the route of NTL by announcing that it will be concentrating on getting revenue from existing customers rather than gaining new ones. Both companies hope the demand for high-speed internet access will fund their renaissance. In November, Telewest said it hoped to be cashflow positive by the fourth quarter.

There are hopes on both sides that the two companies will one day merge, to produce a force that can effectively take on BSkyB, the satellite TV company. But it is now expected that this will not happen this year.

Both Telewest and NTL were burdened with debt to fund a mass road dig for cable throughout the UK. However, demand for the services has been lower than expected.

Telewest's shares now trade at 2.6p, a far cry from the heyday of the technology boom when they were valued at 563p.