Telewest Communications plc has reached an agreement in principle with shareholders regarding a restructuring that will give its bondholders 98.5% equity in the United Kingdom's No. 2 cable operator, in exchange for retiring $5.6 billion in debt.
Telewest's largest bondholders include Liberty Media Corp., W.R. Huff Asset Management and IDT Corp.
The deal is said to be the next step in what could be a merger between Telewest and NTL Inc., the largest U.K. cable operator with 2.1 million subscribers. Telewest has about 1.3 million cable subscribers in the U.K.
NTL went through its own restructuring earlier this year — it emerged from Chapter 11 bankruptcy in January, after agreeing to swap $10.9 billion in debt for 100% equity.
In August, NTL president Barclay Knapp resigned and was replaced by chief operating officer Simon Duffy.
In February, Telewest managing director Charles Burdick stated that Telewest could possibly merge with NTL in early 2004.
Telewest hit rough times last year as mounting debt — amassed during an acquisition binge in the late 1990s — inched the MSO toward bankruptcy. But last year, it cut a deal with bondholders to swap about $5.7 billion of its $8.6 billion in debt for equity.
Liberty Media Corp. also owns about 25 percent of Telewest stock.
Most analysts expected NTL and Telewest 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 that appears to be behind both companies, the possibility of a combination is more palatable.
Telewest shares were down 11% (93 cents each) to $7.53 per share in 4 p.m. trading last Monday. NTL stock was up 6% ($2.70 per share) to $47.81 apiece.