Liberty Doesn't Make DT's Short List


Liberty Media Corp.'s offer for Deutsche Telekom AG's cable properties missed the cut last week, as the German telephone giant announced it has selected three other bidders.

Although DT did not identify the three bidders it has selected for final negotiations for the cable properties, several German wire services, quoting sources close to the deal, said the Liberty bid offer did not pass muster.

According to those wire services, bids led by U.S. investment firm Hicks, Muse, Tate & Furst, Goldman Sachs Capital Partners and Warburg Pincus are still in the running.

Goldman was said to be bidding along with U.S. private-equity firms Providence Equity and Apax Partners; Warburg Pincus was joined by CVC Capital Partners.

Hicks, Muse was the only bidder making its offer alone.

"The bids received demonstrate that now, as in the past, our cable-TV business is generating substantial interest from buyers despite the difficult economic conditions," said DT deputy CEO Gerd Tenzer in a statement. DT selected the three bidders based on the most attractive economic proposals, it added.

At the Satellite Broadcasting and Communications Association's Sky Forum conference in New York last week, Liberty chief operating officer Gary Howard all but conceded his company is no longer in the running.

Antitrust concerns

"I said a few weeks ago that there was less than a 50 percent chance we would get [the German properties], and I was proved right," Howard said.

Liberty had made a bid with U.S. investment firms Blackstone Group and Apollo International and German private-equity firm BFD Capital, but possible antitrust concerns apparently hampered the consortium's chances.

Published reports put the three bids at between $1.78 billion and $2.37 billion, well below the $2.47 billion to $3.47 billion the German government had hoped for.

Bidding for the cable properties reopened earlier this year after the German Cartel — Germany's regulatory body — rejected a $5.4 billion deal between Liberty and DT, citing concerns over Liberty's programming investments.

The Cartel had worried that with Liberty's vast network interests — its owns pieces of more than 100 cable channels — it could dominate television programming in the country.

At that time, the cartel also blocked a separate deal with TeleColumbus AG, which would have brought 1.4 million cable subscribers under the Liberty fold, in return for an estimated $700 million.

Bidders dwindled

Also hampering Liberty's original plan was chairman John Malone's decision to meet with German Chancellor Gerhard Schroeder about the deal, bypassing Cartel officials. According to several published reports at the time, Malone's decision to go over the regulators's heads infuriated them — and severely hurt the deal's chances for approval.

After Liberty dropped out, the list of interested bidders in the cable properties dwindled. As early as this month, Liberty was optimistic that it could work out a deal, especially since it had revamped the ownership structure of its bid.

Speaking at an industry conference earlier this month, Howard said that under the new structure, all four owners would have an equal 25 percent share of the systems.

"A lot has happened since then [when Liberty's original bid was rejected]," Howard said. "The regulators are looking more realistic. The new structure allows us all to be co-owners.

The German systems — in six states, passing 10 million homes — were to be the cornerstone of Liberty's European cable strategy. But Howard said losing out on the German systems won't hamper Liberty's overall European efforts.

Other Euro deals

While a German deal would have substantially increased Liberty's European cable footprint, it has other transactions in the works.

Aside from its 76 percent interest in UnitedGlobalCom, which has 11.2 million video subscribers in 26 countries, Liberty also is close to signing a deal to purchase Dutch cable operator Casema N.V.

Casema has about 1.3 subscribers in the Netherlands, all which could be linked with United Pan-European Communications N.V., the largest cable service provider in that country and another Liberty holding.

Although Liberty has said it would not combine Casema with UPC — which has about 2.5 million subscribers — the company has told Dutch regulators it wouldn't exclude closer cooperation between the two companies.