NTL, Morgan take French cable stake

49.9% of Gallic operator sold for $1.2 bil

Cable company NTL has teamed up with Morgan Stanley Dean Witter Private Equity to acquire 49.9% of Noos, France’s biggest cable operator for $1.2 billion.

The deal valuing Noos, the former Lyonnaise Cable, at $2.45 billion, was expected following the withdrawal from the race on July 31 of rival cable operator UPC.

NTL and Morgan Stanley will have 27% and 22.9%, respectively, when the sale is finalized by the end of the year. France Telecom has a 25% stake in NTL.

Deal advances NTL’s presence in Europe, delivering on its promise of investing in international markets while it expands its U.K. digital subscriber base. It is already in London, Frankfurt Geneva, Dublin and Stockholm.

Suez Lyonnaise des Eaux, the French utilities group that owns the remaining 50.1% said the alliance with NTL would allow it to benefit from the British group’s cable expertise.

While France is Europe’s third most populous country, cable services remain relatively underdeveloped with only 32% of homes having access and of those, 37% subscribing.

Conversely, France boasts two rival satellite platforms, CanalSatellite and TPS.

But French cable operators are hoping Internet and multimedia will breathe new life into their sector. To that end, Noos, which has said it will post losses this year of $128 million on revenues of $171 million, is due to embark on an ambitious $185 million modernization of its network later this year.

Noos was formed in 1999 through the merger of FT’s cable assets with those of Suez-Lyonnaise des Eaux. It has an estimated 26% share of the French cable TV market and a total of 737,000 subscribers to its combined cable services.

France Telecom said it would make a pre tax profit of $485 million from the deal. On the Paris stock market, shares in both France Telecom and Suez Lyonnaise des Eaux were up Monday.

Merger possibilities

Purchase diverted attention away from speculation about a possible merger between NTL and Telewest, its struggling rival in the U.K. cable market.

Rumors that Telewest is vulnerable to a takeover bid, following technical difficulties and a large drop in share prices, were fueled by talk of a $9 billion offer made by U.S. private equity group Callahan Associates.

But Callahan has denied making the offer, and Telewest has denied being receptive to the possibility.

The alternative proposal of a merger with NTL, which many in the industry consider almost a certainty in the long term, met with a more positive response last weekend from Telewest chief exec Adam Singer, who called it “legitimate speculation.”

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