NTL buys Telewest for $6bn

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NTL confirmed on Monday that it was buying rival UK cable operator Telewest for about $6.0bn, a deal which will enable it to compete more effectively against rivals including BT and British Sky Broadcasting.

Telewest shareholders will receive $16.25 in cash and 0.115 new stock in NTL for each share they own and will own 25 per cent of the enlarged company. The deal values Telewest at $23.93 a share or about $6bn.

NTL is also taking on ?1.7bn pounds of Telewest debt. NTL said it would tap the corporate bond market for ?1.8bn to fund the takeover of Telewest, with a further ?500m coming from its cash pile.

Simon Duffy, chief executive of NTL, will head the new company, with Jim Mooney, NTL chairman, also remaining in the role in the combined group.

Barry Elson, acting chief executive of Telewest will leave the company, while Cob Stenham, Telewest chairman, will be deputy chairman.

A merger between the two companies has long been anticipated, but detailed negotiations started in June following the appointment of financial advisers. The two companies share leading shareholders, including WR Huff Asset Management, the US distressed asset investors, and Franklin.

While the two cable groups? operations are in the UK, they were listed on Nasdaq following their restructuring a few years ago. The combined cable group, which will have 5m customers, will retain its primary stock listing in New York rather than moving to London.

The creation of a single cable company, which will offer telephony, internet and multichannel television services, will enable it to compete more effectively against rivals such as BT in the telecoms arena and British Sky Broadcasting in pay-television.

James Mooney, said: ?The company will have additional resources to roll out new product offerings ? such as HDTV, VoD and VoIP ? across its footprint. This pro-competitive combination will provide customers with improved access to competitively priced and flexible communication and entertainment services.?

The companies expect a net present value of approximately ?1.5 billion in synergies, net of the cost to achieve them. Both NTL and Telewest have been considering outsourcing of technical staff. Further efficiencies are expected to come from call centres, head office and marketing, although full integration of the two organisations is likely to take over two years.

It is unclear whether Telewest will continue with its auction of Flextech, its content arm. Some media executives and analysts have questioned the authenticity of the sale process. Charles Allen, chief executive of ITV, the UK commercial broadcaster, recently suggested it could be an ?elaborate valuation? exercise.

In the past, Mr Duffy has voiced his doubts over vertical integration of entertainment platform and content companies, but in a recent industry conference, he noted that content was an important strategic asset.

Once announced, the Office of Fair Trading will investigate the deal, although competition specialists doubt it would be referred to the Competition Commission.

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