UGC and Hicks, Muse Discuss Latin TV Deal

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Buenos Aires, Argentina-In what may represent Latin America's largest pay television transaction, UnitedGlobalCom Inc. and Hicks, Muse, Tate & Furst Inc. are discussing the combination of their multichannel-TV businesses in the region, sources close to the talks said.

According to company executives, UGC and the Dallas-based investment firm are preparing to combine the bulk of their Latin American system and programming assets into a new panregional holding company that would be publicly traded in the United States.

The discussions were confirmed by Greg Armstrong, outgoing managing director of Liberty Media International Inc.'s Latin American unit.

In June, UGC agreed to acquire most of Liberty's Latin American assets as part of a wider-ranging deal that will make Liberty UGC's biggest shareholder. Most of Liberty's Latino assets-namely a stake in MSO CableVisión S.A. and full ownership of 13-channel programming group Pramer S.C.A.-are in Argentina.

"By looking beyond individual markets and trying to achieve economies of scale, we're creating the first truly end-to-end broadband solution for consumers in Latin America," Armstrong said.

As part of Liberty's transfer of assets to UGC, Armstrong's post here is being eliminated. Earlier this month, he joined a Liberty-owned video-on-demand provider, On Command Corp.

"We never comment on potential transactions, but it's been our stated goal for some time to form a large, panregional broadband and media company," said Paul Savoldelli, managing director for Hicks, Muse Latin America.

UGC president and chief operating officer Mike Fries declined to comment on the talks in question. "It's premature to talk of further consolidation in Latin America when our [existing] deal with Liberty isn't even scheduled to close until late October or early November," he said.

But sources involved in the current talks confirmed that the new company could be formed as early as the fourth quarter of this year or early next year.

If market conditions permit, the company is expected to sell shares in an initial public offering shortly after its formation.

Armstrong declined to comment on the proposed IPO or on how the new company would be structured.

Other sources said UGC and Hicks, Muse would attempt to raise between $600 million and $800 million by selling a 20 percent stake, valuing the firm at up to $4 billion. They would evenly split the remaining 80 percent.

If the deal pans out, it would group UGC, Liberty and Hicks, Muse stakes in at least seven Latin American cable-systems companies serving 2.85 million subscribers, passing 7 million homes and boasting a further 4.9 million households in their franchise areas.

Sources said the cable systems that would likely be folded into the new holding are CableVisión, Brazil's TV Cidade, Chile's VTR Globalcom S.A., Colombia's Telecentro, Mexico's Megapo Comunicaciones, Uruguay's Cable Equital S.A. and Venezuela's Intercable.

The deal would also combine a host of valuable programming assets, including Pramer and UGC's 50 percent share in MGM Networks Latin America.

And the new company would gain majority control of Torneos y Competencias S.A. (TyC), Argentina's largest sports-media outfit, of which Hicks, Muse and Liberty own a combined 60 percent. It could not be learned if Hicks, Muse's panregional sports channel, Pan-american Sports Network, would be bundled with the new company.

The impact of combining so many assets, analysts said, is deleveraging debt-laden properties like CableVisión with others that are relatively debt-free.

"Given CableVisión's huge debt and the market negativity toward Argentina right now, it wouldn't be able to raise on its own the significant financing it still needs to roll out broadband services," said Bruce Stanforth, head of Latin American corporate research for BNP Paribas Group in New York.

One of Latin America's largest MSOs, with 1.4 million subscribers, CableVisión currently has more than $1 billion in outstanding debt.

Last month, ratings agency Standard & Poor's Corp. put the company's debt on "CreditWatch with negative implications," citing operating weakness-including a churn rates of 25 percent-brought on by the country's ongoing recession.

According to Armstrong, informal discussions on a closer partnership at the regional level between Hicks, Muse and Liberty began more than one year ago and continued when UGC agreed to acquire the bulk of Liberty's Latin American assets.

The breakthrough came last December, when Hicks, Muse agreed to buy Spanish telco Telefónica Internacional S.A's 36 percent stake in CableVisión. Once that transaction closes later this month, Hicks, Muse and Liberty will each own 50 percent of the MSO.

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