Spains TISA, Liberty Negotiate Latino Cable Deal

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Buenos Aires -- Spain's Telefónica International S.A.
(TISA) and Liberty Media International Inc. are hammering out the fine print of a
mega-deal that would give the international arm of the Spanish telephone giant full
control of the AT&T Corp. subsidiary's Latin American assets, according to sources
close to the talks.

If those discussions bear fruit, it would dramatically
alter the balance of power in Argentina's cable market, the region's largest, where the
two companies are partners with CEI Citicorp Holdings S.A. (CEI) in some of the country's
most valuable media assets, including CableVisión, a top Argentine MSO.

The deal would also be TISA's first investment in Latin
America since the creation in April of Telefónica Media, an independent division based in
Miami that is responsible for developing synergies among its assorted media holdings in
the region.

Liberty executives deny there are any plans to pull out of
Latin America, and that the company is close to an agreement to sell assets to TISA.
However, they do acknowledge that its long-standing relationship with TISA -- and its
relationship with CEI, which was recently taken over by Dallas-based investment fund
Hicks, Muse, Tate & Furst Inc. -- has included discussions that could lead to a
reshuffling of assets.

"It's certainly true that within the last year every
player in our partnership [CableVisión] has probably talked about either selling their
own interest or buying the others," Liberty Media International president Miranda
Curtis said from London. "That's a round of conversations that continues, but for now
we don't have anything concrete to talk about."

That sentiment was seconded by Liberty's managing director
for Latin America, Greg Armstrong. He added that there are a number of firms other than
TISA, mainly U.S.-based telecom companies, which could emerge as the dominant player in a
new regional alignment.

"Although there have been discussions among the
partners to resolve management discrepancies in Cablevisión and other jointly held media
assets, no particular entity has been identified yet as either a buyer or seller,"
said Armstrong, who is also president of CableVisión.

Still, Liberty's partners are already preparing the way to
eventually hand over its assets to TISA, with the closing of the deal expected soon.
According to one source close to the talks, TISA is expected to ante up between $1,800 to
$2,400 per subscriber for Liberty's Latin American cable holdings, the bulk of which are
concentrated in CableVisión, in which it has a 28.3 percent stake.

TISA and CEI each have 35.9 percent of CableVisión. If
true, these prices would be the highest ever paid for cable assets in Latin America. Aside
from Argentina, the only other Liberty's only other investment in Latin American cable
operations is Chilean MSO Metropolis Intercom, in which TISA also has a stake through
Chilean telco Telefónica Chile S.A.

Also up for grabs are Liberty's Latin American programming
holdings, including its 40 percent controlling stake in Torneos y Competencias (TyC), the
country's leading sports programmer. TyC has exclusive rights to televise soccer through
2014. TyC, in which CEI and TISA each have a 20 percent stake, is, in turn, a minority
investor in the ATCO and AC Inversora media companies, which between them control a vast
network of leading broadcast television channels, radio stations and publishing houses.

Held independently but also apparently for sale is
Liberty's wholly owned Pramer SRL, Argentina's largest pay TV programming network group.

The deal could be derailed, however, if the interests of
Hicks, Muse are not properly accounted for, Santander Investment vice president of
emerging market research David Taff said. By exercising its right of first refusal and
other contractual remedies, Hicks, Muse can effectively block any undesirable ownership
changes if Liberty does not exercise its option to sell prior to Oct. 9.

However, after that date, exercising a sale option triggers
a shotgun provision under which another partner -- in this case Hicks, Muse -- could
require TISA or Liberty to singly or jointly bid on its stake instead.

"Hicks, Muse as a short-term investor doesn't fall in
love with assets. At the right price it will sell," Taff said.

The possible landmark deal also makes sense for TISA,
believes Paribas telecommunications analyst John Graves.

"TISA could be looking to grab these assets now so as
to avoid paying an even higher premium down the road," he said. "When you have
cable assets in the U.S. going for $4,000 per subscriber, $2,000 seems like a steal,
especially considering Cablevision's high penetration and the quality of its
network." The analysts agree that a deal now rather than later would satisfy the
interests of Hicks, Muse and TISA.

"Hicks, Muse might not get another opportunity to sell
these assets for a few years, and given the pan-regional aspirations of TISA, they are a
natural candidate," Graves added.

What is expected to follow, Graves said, is a series of
arduous negotiations in which the parties haggle over prices and do their best to keep
their go-it-alone regional strategies intact.

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