Liberty, UGC May Finally Seal Deal


After 17 months and at least three deal revisions, Liberty Media Corp. and UnitedGlobalCom have reached an agreement where Liberty would significantly increase its stake in the European cable operator.

But while the UGC deal appears to be on the road to completion — it is scheduled to close in the first quarter, pending shareholder approval — another larger international cable deal between Liberty and Deutsche Telekom AG appears to have hit a snag.

In June, Liberty agreed to pay $4.9 billion for DT's cable assets in Germany, representing about 3.5 million subscribers and more than 10 million homes passed. While that deal awaits approval from the German regulators, Liberty chairman John Malone has been maneuvering to renegotiate the transaction.

According to a Financial Times
story last week,
DT CEO Ron Sommer said he would look for other bidders if Liberty attempts to lower the agreed-upon price.

Liberty is also under scrutiny for attempting to push through the DT deal, as well as a separate pacts to purchase 1.7 million subscribers from Tele-Columbus for $2 billion and a deal to acquire News Corp.'s 22 percent stake in German operator Kirch Group's Premiere World pay television network.

Liberty reportedly has included covenants that would allow it to exit the DT deal if any of the other transactions were not approved.

Liberty had hoped that the DT deal would move quickly through the approval process, but anti-competitive concerns were heightened after Liberty locked up the UGC deal.

UGC has about 10.6 million cable, 671,000 telephony and 672,000 high-speed data subscribers in 26 countries in Europe, Latin America and Asia.

As part of the latest agreement, Liberty and UGC will form a new entity — called "new United." Liberty will contribute an $896 million loan, $200 million in cash and $1.4 billion in bonds in UGC subsidiary United Pan-European Communications Inc. in exchange for a 76 percent equity interest, or 297.8 million shares, in new United.

The May deal had called for Liberty to take a 44 percent stake in UGC.

One major difference is that Liberty will not contribute its Latin America cable assets to the new entity. As part of the May deal, Liberty was to contribute its 50 percent interest in Argentine cable operator Cablevision S.A., and its stakes in two of the largest Latin American programmers Pramer S.C.A. (100 percent) and Torneos y Competencias S.A (40 percent).

UGC stock more than doubled last Monday after the deal was announced.

The announcement removed the uncertainty that has surrounded the Liberty/UGC transaction since it was first announced in May 2000. UGC stock closed at $3.02 per share on Monday, up $1.62 each.

"I guess the market liked it," UGC spokesman Jim Carlson said.

As in the May agreement, UGC's management, including chairman Gene Schneider, will continue to operate the company. Liberty also has agreed to a 10-year standstill and voting agreements that will keep control and governance of new United in the hands of UGC's founders, including Schneider.