LIBERTY MEDIA BUYS GERMAN CABLE FROM DEUTSCHE TELEKOM
Liberty Media Group and Klesch & Co. signed letter of intent Fri. to buy controlling 55% stake in 6 German cable companies owned by Deutsche Telekom for more than $2 billion. Deal, which would give Liberty Media-Klesch consortium option to boost its ownership interest to 75% later, covers 10 million cable homes spread across 13 of Germany’s 16 states. Deutsche Telekom, which has been saddled by $51 billion of debt from acquisitions and investment in new European mobile phone licenses, will retain minority stake in regional cable operations. But Liberty Media- Klesch consortium will be able to compete against Deutsche Telekom’s former monopoly phone network with cable telephony, high-speed data and interactive TV services.
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With Deutsche Telekom deal, Liberty Media Chmn. John Malone will significantly increase his company’s presence in European cable market and make it major player in key German TV market. Besides picking up 10 million cable subscribers, Liberty Media will gain access to some of Germany’s most attractive regions, including Bavaria, Berlin, Brandenburg, Hamburg. But company also will have to upgrade its new cable systems to offer such promising services as digital video, high-speed data, cable telephony, interactive TV. Standard & Poor’s quickly placed Liberty debt rating on Creditwatch with negative implications. Rating service said it was concerned about shift in Liberty portfolio to more leveraged assets, as well as increased exposure to European cable market.
In another European cable deal announced Fri., Liberty Media and UnitedGlobalCom modified earlier agreement that will make Liberty Media biggest shareholder in UnitedGlobalCom, largest international MSO with cable operations in 26 nations. Under revised deal, Liberty Media will invest up to $1.4 billion in cash in UnitedGlobalCom for up to 100,000 shares of latter’s preferred stock. Liberty Media will pay cash for its stake instead of giving up its 25% interest in Telewest Communications, another European MSO, as previously planned.
Spokesman for UnitedGlobalCom said 2 companies restructured transaction after it became clear that UnitedGlobalCom’s bondholders, worried about waiving their ownership rights, would not approve original deal. “This is a much cleaner way to do that,” he said. UnitedGlobalCom spokesman said new deal also should ease Wall St. concerns about company’s running out of funding in 2 years. “Obviously, having another $1 billion will be a huge help,” he said. “It’s just a real shot in the arm.”
Although 2 European deals are not directly related, sources said Liberty Media ultimately could transfer its new German cable assets to UnitedGlobalCom because Liberty isn’t cable operator while UnitedGlobalCom is. Latter, which is particularly active in Europe with 7.5 million cable subscribers in 17 countries, already owns half of smaller cable operation in Germany. Overall, MSO has 9.5 million cable customers in its 26 nations, including 600,000 cable telephony and 450,000 high-speed data subscribers.
Both moves came just 2 days after Liberty Media filed its long-awaited spinoff proposal with SEC. In filing, it said it planned to separate from parent AT&T by swapping shares in its current tracking stock for equal number of shares in independent firm. Plan calls for AT&T to pay Liberty Media estimated $500- $800 million in exchange for tax benefit of losses carried forward from Liberty Media’s time as unit of former MSO Tele- Communications Inc., which AT&T took over 2 years ago. Spinoff still is dependent on IRS approval as tax-free transaction because of $2 billion tax bill that companies would face otherwise.