Content

Malone, Murdoch Eye U.K. Programmer

9/09/2005 8:00 PM Eastern

Liberty Media Corp. chairman John Malone and News Corp. chairman Rupert Murdoch have joined the bidding for Flextech Television, the programming arm of United Kingdom cable operator Telewest Global Inc.

Analysts have long said that a sale of Flextech would be a precursor to a larger deal between Telewest and No. 1 U.K. cable operator NTL Inc.

According to reports in The Times of London and other British newspapers last week, Malone and Murdoch’s British Sky Broadcasting Group plc have joined a growing list of bidders for Flextech, including Viacom Inc. and Time Warner Inc., as well as several European programmers.

GOOD FIT

The largest single provider of television channels in the United Kingdom, Flextech owns 10 channels outright and is a 50-50 partner with the British Broadcasting Corp. in UKTV, which owns another 11 channels. Flextech is expected to fetch a purchase price of between 800 million pounds ($1.47 billion) and 1.1 billion pounds ($2.02 billion).

Malone was the controlling shareholder in Flextech in 1994, and he engineered the sale of the programmer to Telewest in 1999. Malone’s familiarity with the assets, as well as his substantial European cable portfolio, would make Flextech a good fit, wrote UBS Warburg cable debt and equity analyst Aryeh Bourkoff in a research note.

Bourkoff noted that Flextech’s home-shopping network — Sit-up — could mesh well with Liberty’s home-shopping juggernaut, QVC Inc. Flextech’s Living TV channel also could fit well with Liberty’s 50% interest in Discovery Communications Inc., now positioned in the separate, publicly traded Discovery Holding Co.

“The robust auction for these assets could provide a greater level of clarity as to the value of the Flextech assets, which could ease merger discussions between NTL [and] Telewest,” Bourkoff wrote, although he noted that a Flextech sale is not necessarily a requirement of an NTL deal.

Telewest has reportedly been pleased with Flextech’s performance — it generates about $734 million in revenue each year — but NTL CEO Simon Duffy has said in the past that he sees no reason for a distribution company like NTL to own content.

In an interview with U.K. newspaper The Guardian in May, Duffy said: “I am on the record as saying that I am somewhat skeptical of the alleged merits of vertical integration between content and distribution. Most often it doesn’t work.”

Liberty Media spun off its European cable assets last year into a new entity called Liberty Media International Inc. Earlier this year it contributed its controlling stake in the largest European MSO — UnitedGlobalCom Inc. — into LMI, changing its name to Liberty Global.

PRINCELY POSITION

In an unrelated move, Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud increased his voting stake in News Corp. to 5.46%, according to documents filed Sept. 7 with the Securities and Exchange Commission.

Through his Kingdom Holding Cos. investment arm, according to the documents, Prince Alwaleed entered into three separate agreements with Citigroup Global Markets between June 14 and Aug. 29, where he delivered 60.1 million shares of News Corp. Class A common stock in exchange for 56.2 million Class B voting shares. The transactions basically converted a 3% nonvoting stake in News Corp. into a 5.46% voting stake.

Prince Alwaleed is the fifth richest man in the world and a major media investor. In addition to his News Corp. holdings, the billionaire prince owns substantial stakes in Time Warner Inc. and Euro Disney S.C.A.

The move comes in the wake of Liberty’s efforts to bulk up its voting shares of News stock — in December it increased its voting stake to 18%, rivaled only by the Murdoch family’s 30% voting interest in the company. Liberty and News Corp. had tried to work out a deal for the media giant to buy back at least some of its voting shares from Liberty, but those negotiations broke down last month. Since then, Malone said he would be open to buying even more News voting shares, which prompted News Corp. to renew a “poison pill” shareholders-rights agreement that would make it difficult for an individual shareholder to acquire more than a 15% voting stake in the company.

Prince Alwaleed has said in the past that he would support Murdoch in the event of a hostile attempt by Malone or Liberty to acquire more News Corp. shares. In the Sept. 7 SEC filing, the prince reiterated that support.

“Last November, I said that I had the utmost confidence in Mr. Murdoch, his management team and his succession planning, and that if necessary, the Kingdom companies would replace their nonvoting shares with voting shares and potentially purchase additional shares in support of Mr. Murdoch and his plans,” Prince Alwaleed said in the filing. “The Kingdom companies now own a significant interest in News Corp. voting shares … and may purchase more if the situation warrants.”

March