Indebted UK cable company, NTL, this week rejected a $2 billion bid from US company Liberty Media, preferring instead to restructure and refinance with its own bondholders (see NTL Is Close To Refinancing, Says Report). In exchange for the cash injection, Liberty would have received a 50% stake in NTL.
However, NTL’s bondholders are thought to be concerned that such an arrangement would give Liberty a senior position amongst NTL’s creditors.
Liberty Media already holds a 25% stake in Telewest Communications, the UK’s second largest cable operator and is known to be keen to merge this with NTL. It is thought unlikely that Liberty’s chief, John Malone, will now make a counter bid to the NTL’s bondholder offer.
Analysts at Datamonitor say that it is about time NTL restructured, allowing it to focus on its business and not on juggling its debts.
“While the collapse of the Liberty deal is disappointing, in that it further delays the prospect of a merger with fellow UK cable operator Telewest, the bondholder negotiations should still allow NTL to survive. A merger between the two companies would then be feasible,” remarks Datamonitor.
UK TV needs NTL to survive The survival of NTL is very important for the UK television industry, particularly the digital television market now that ITV Digital has folded. Either deal, assuming it secures NTL’s future, is therefore good news for UK TV, says Datamonitor.
“NTL’s core business is sound, but the company has been on a financial precipice for the last year. Instead of focusing on its business, it has been forced to manage its huge debts, incurred by making acquisitions with borrowed cash at the height of the TMT boom.
“After a restructuring, both NTL and … Telewest will need to boost revenues while keeping a close eye on costs. Customer acquisition is no longer a priority, leaving satellite giant BSkyB in a position to pick up the most attractive of ITV Digital’s subscribers if the terrestrial digital platform [finally] fails,” says Datamonitor.
The research company says that NTL and Telewest’s focus should now be on customer service and technology enhancements that raise average revenue per user (ARPU) – such as broadband internet and interactive TV (iTV).
Merger still makes sense Since they are not in competition, due to the regional franchise nature of cable licensing, the best move could still be a merger of the two companies. This is an argument in favour of the Liberty deal, given its 25% holding in Telewest.
“However, the merger is not dead. In the past, investors have worried that NTL’s debts would drag Telewest down too – but two restructured companies would be in a much better position to join up, even without Liberty CEO John Malone’s hand at the wheel,” Datamonitor argues.
