Comcast leads race to buy TW’s E! stake

NEW YORK – Cable operator Comcast Corp. has emerged as the most likely buyer of Time Warner Inc.’s majority stake in E! Entertainment Television cable network, sources said Thursday.

Comcast is understood to recently have notified its three cabler partners, which together own the minority stake in E!, that it wants to buy Time Warner out of its 58% stake. None of the other three cablers in the minority group – Cox Communications, Tele-Communications Inc.’s Liberty Media and Continental Cablevision – made such a declaration so the ball is in Comcast’s court.

But people close to the deal emphasize there are many twists and turns still ahead before a final deal is due by Feb. 6. Until that date, any of the cablers can change their minds on bidding, according to the complicated terms of the partnership agreement. E! CEO Lee Masters, who declined to comment on the status of the situation, said negotiations are “ongoing and it won’t be definitive in any form until Feb. 6.” Neither Comcast nor Time Warner would comment Thursday.

Nevertheless, people close to the situation believe Comcast is likely to end up doing the deal, although the cabler is believed to want a partner to help finance the $320 million pact. One option being considered is for Comcast to acquire the stake in E! through QVC, the home shopping network jointly owned by Comcast and Liberty, which has enormous borrowing capacity because of its healthy cash flows.

Studio partner possible

Comcast, which has engaged Salomon Bros. to advise it on the deal, also is thought to be interested in lining up a studio partner for the deal. Sources said Sony Pictures Entertainment and MCA, both of which are interested in expanding their cable network interests, could be potential partners.

Comcast’s declaration of its intention follows Time Warner’s valuation of E! at about $550 million last month, which in turn was prompted by the cablers’ decision a few weeks earlier to trigger the buy-sell provisions in the partnership agreement. Under the terms of the agreement, if none of the cablers opted to buy at Time Warner’s price, the entertainment giant must buy the cablers out. Each of the cablers owns 10.4% of E!.

And if, as has occurred, one of the cablers opts to buy Time Warner out, the other cablers stay in as minority partners although the buyer would have the right to buy the cablers out in five years’ time.

Time Warner is believed to be keen to sell. While cable networks are clearly within its growth strategy, its recent acquisition of Turner Broadcasting Systems gives it plenty of cable networks, and the company’s priority now is debt reduction. Its interest in E! would be worth $320 million.

Programming expertise

Of the cablers, Comcast and Liberty have the strongest presence in cable programming. Indeed as well as acquiring a majority stake in QVC, Comcast set up a programming venture, C3, with former Disney exec Rich Frank last year, and he is believed to be a key figure in the deal. E! would end up as part of C3, sources said.

But no one involved in the deal was willing to say that Comcast’s intentions were definite. People close to the company say it has a month to “have a nice long look at the strategic and value implications” of the deal.

Some sources said at least one of the other cablers wants to buy out Time Warner as well but simply couldn’t get agreement from the other cablers about the structure of a deal.

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