Telewest Foreshadows NTL Merger

2/16/2003 7:00 PM Eastern

Telewest Communications plc, the United Kingdom's second-biggest cable operator, said it would reach cash-flow positive status by the end of this year — six months earlier than originally expected — and said that a merger with NTL Inc., the No. 1 U.K. MSO, could happen in 2004.

Talking to Dow Jones Newswires in London last week, Telewest managing director Charles Burdick said an early 2004 date for a combination was possible.

The company hit rough times last year as mounting debt — amassed during an acquisition binge in the late 1990s — inched Telewest toward bankruptcy. But last year, it cut a deal with bondholders to swap about $5.7 billion of $8.6 billion in debt for equity.

Liberty Media Corp. owns about 25 percent of Telewest stock.

NTL went through its own restructuring woes, emerging from Chapter 11 bankruptcy protection this year as two companies, NTL U.K. and Ireland and NTL Europe. It also restructured $17 billion in debt in an $11 billion debt-for-equity swap.

"Our new owners will get anxious for some sort of equity uplift, and I think a merger is the way to do that," Burdick told Dow Jones.

Most analysts expected the two entities to combine eventually. Together, they'd make more formidable competition for the U.K.'s largest multichannel video-service provider, News Corp.'s direct-to-home satellite platform British Sky Broadcasting plc.

A merger would face little regulatory scrutiny because there is little overlap.

In the past, the main obstacle has been the two companies' heavy debt load. But since NTL drastically reduced its leverage after emerging from bankruptcy — and Telewest is now making strides to reduce its debt — the possibility of a combination is more palatable.

"It [the combination] was always perceived as something that made sense, but it was slow to happen," Harrigan said. "A lot depended on the timing of the repairs at Telewest and NTL.

"Neither has a horribly impaired capital structure," Harrigan added. "But the cash-flow margins are thin. BSkyB is obviously the most competent marketing company in the U.K. I think it will be a while before we see any dramatic changes."

Harrigan doesn't think Liberty is pushing for the marriage. "The U.K. is very much on the back burner for Liberty," said Janco Partners cable analyst Matt Harrigan.

Sizing Up: U.K. MSOs
Source: Company reports.
3Q '02 3Q '01
Revenue:$507 million$504.2 million
Cash Flow:$149 million$130.9 million
Cable Subscribers:1.3 million1.32 million
Telephony Subscribers:1.6 million1.59 million
3Q '02 3Q '01
Revenue:$997.2 million$1.05 billion
Cash Flow:$294.2 million$213.3 million
Cable Subscribers:2.06 million2.3 million
Telephony Subscribers:2.42 million2.6 million

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