Liberty sets United front

United to pay Liberty common shares

NEW YORK — The ever-nimble media holding company Liberty Media took a giant leap into the world of major broadband players Monday, announcing that it would become the largest shareholder in high-speed communications provider UnitedGlobalCom via the type of labyrinthine arrangement for which Liberty chairman John Malone has become famous.

Under terms of the deal, United will pay Liberty $200 million and 75.3 million of its Class B common shares for a package of Liberty’s international broadband distribution and programming assets. The swap gives Liberty, which is majority owned by AT&T, access to both programming and distribution assets on a large scale — a goal similar to that of the AOL-Time Warner merger last January.

When the smoke clears, Liberty will own a 38% outright share and a whopping 72% voting interest in United. Liberty also will exert control over a massive broadband pipeline with exposure across Europe, in addition to its stable of traditional programming and distribution assets.

In exchange, the company will hand over a 25% stake in Blighty broadband provider Telewest Communications in the form of a 99% interest in a holding company that owns 724.3 million Telewest shares, which trade on the Nasdaq under the symbol TWSTY.

In a creative piece of dealmaking, however, Liberty will retain a 1% stake in the holding company, as well as full management power. Meanwhile, United will give its new 99% interest in Telewest over to its telecom services unit United Pan-Europe Communications, which will give the latter a new access channel into the well-developed U.K. broadband market.

Liberty also will give up a 28% stake in Argentina’s Cablevision, 100% of Argentine TV programming firm Pramer and minority equity interests in several other media programming and distribution concerns, including several broadband properties in Latin America and elsewhere.

Street spin

News of the deal understandably sent investors’ heads spinning Monday and, as of the market close, they seemed to still be mulling the deal over. Liberty shares traded choppily on heavy volume before closing down 2.3% at $24.19. Wall Street was more sanguine about the deal’s implications for Telewest: that stock jumped 11.4% to $45.38.

Stewart Halpern, a media analyst with Banc of America Securities, said investors’ trepidation on Monday may stem in part from concern over the high valuations that Liberty assigned to the assets it acquired.

However, Halpern pointed out that Liberty is paying not only for the raw United assets themselves, but also their potential for growth, “particularly in conjunction with the assets that Liberty Media brings to the table.”

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