Liberty, UGC Remake Map with $5.5B Deal

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Liberty Media Group raised its international cable profile last week, swinging a $5.5 billion deal to become the largest shareholder in UnitedGlobalCom Inc.

Denver-based UGC, the largest broadband-communications provider outside of the U.S., will buy most of Liberty's international broadband and programming assets for $200 million in cash and 75.3 percent of UGC's class-B stock. That stock represents a 38 percent economic interest and a 72 percent voting interest in UGC.

Including Liberty's earlier stake in UGC, Liberty will control about 45 percent of UGC stock, with 82 percent voting control.

Although Liberty will wield influence, UGC will continue to be controlled by its founders, including chairman Gene Schneider. Liberty will be bound by 10-year voting and standstill agreements with UGC and certain controlling shareholders. And Liberty has the right to appoint four of 12 directors.

The deal gives Liberty, chaired by John Malone, a major stake in a large cable player in Europe, Australia and Latin America.

UGC gets Liberty's Latin American assets, making it the largest cable operator in that part of the world, with more than 5 million homes passed and 2 million subscribers.

"The objective for us is to combine our international assets to create a larger company with more scale," Liberty president Robert Bennett said in a conference call. "We view this as a unique opportunity to take these assets, combine them with UGC and gain true scale in Latin America and Europe."

Liberty and UGC also have a history that goes back decades to when Schneider sold his domestic cable operations to Malone's Tele-Communications Inc.

Liberty's Latin American assets include a 28 percent stake in CableVisión S.A. of Argentina, the largest cable operator in Latin America, with more than 3.4 million homes passed and 1.5 million subscribers.

UGC also gets Liberty's regional programming interests in Latin America, including 100 percent of Pramer S.C.A., which owns or distributes 18 channels, mainly to the Argentine market; a 40 percent stake in Torneos y Competencias, an Argentine sports and entertainment programmer; and the Latin American operations of Gems Television.

UGC also gets Liberty's 49 percent stake of Liberty Cablevision of Puerto Rico; 41 percent of Mexican wireless-broadband-service provider Grupo Portatel; and 43 percent of Digital Latin America, a joint venture of Hicks, Muse, Tate & Furst Inc. and Motorola Inc. to build a satellite platform.

"Liberty is about being strategically aligned with the right people globally to expand their existing powerful content brands worldwide," Janco Partners analyst Ted Henderson wrote in a report. "This is a great alignment for them."

Noninternational assets in the deal are Liberty's 15 percent interest in Crown Media Holdings Inc., distributor of Odyssey; and 20 percent of Premium Movie Partnership, a movie-channel venture in Australia.

UGC also got Liberty's 25 percent stake in United Kingdom MSO Telewest Communications plc, which will go to UGC's European cable unit, United Pan-Europe Communications N.V. (UPC), in exchange for 128 million UPC shares. UGC upped its UPC stake to 61 percent from 51 percent.

The deal values UGC stock at about $70 per share, a 60 percent premium to the market price at the time of the deal.

Bennett said Liberty considered UGC undervalued. "If you look at the underlying publicly traded securities of UGC, you get to about $70 per share," he said. "Given that we are a long-term holder and a strategic holder [of UGC stock], we were comfortable using a sum-of-the-parts valuation."

Liberty's interests in Japanese program and distribution assets, as well as its stakes in cable operations in Chile and Ireland, were excluded from the deal. But UGC retains a right of "first offer" for those properties.

Liberty cut a deal with Microsoft Corp. the next day-June 27-to combine their Japanese assets and create the largest cable operator in Japan.

In the long-expected deal, Jupiter Telecommunications Co. Ltd., a partnership between Liberty and Sumitomo Group, would acquire Titus Communications Corp., which is 80 percent-owned by Microsoft. The resulting MSO would have 750,000 subscribers.

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