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Liberty Eyes Second German Cable Bid

7/21/2002 8:00 PM Eastern

Liberty Media Corp. is reportedly talking to a group of private-equity firms to help it make another bid for Deutsche Telekom AG's cable assets in Germany.

According to the Financial Times, Liberty has talked with Apollo Management and Apax Partners about joining in an effort to acquire the cable properties, which have about 3 million subscribers and pass about 10 million homes.

Liberty had reached a deal in September to buy the DT properties for $5.5 billion. But German regulators squashed that deal in February by insisting that Liberty also promise to provide wireline telephony service to its cable customers.

Liberty had said in the past that it would provide a telephony service, but only after Internet-protocol technology is more readily available, a development expected in about two years.

German regulators also blocked a separate deal — with TeleColumbus AG — that would have brought 1.4 million cable subscribers into the Liberty fold, in return for an estimated $700 million.

German regulators had hoped another buyer for the assets would surface, but none have to date. In the meantime, Deutsche Telekom, which is 43 percent owned by the German government, is hard-pressed to raise cash to pay down its mounting debt.

And on July 16, DT chairman Ron Sommer resigned amid heavy pressure from its board of directors because of the debt load — estimated to be about $67.9 billion — and its declining stock price.

Deutsche Telekom's American Depository Receipts have fallen 36 percent since the beginning of the year and by 80 percent in the past two years.

SAID SO IN MAY

At Liberty's annual investors conference back in May, chairman John Malone said that the company would look at re-entering the fray for DT.

"We may end up back in Germany," Malone said at the time. "At the moment, what seems to be cheap gets cheaper if you wait."

According to Financial Times, the value of the cable assets have been more than cut in half since Liberty's bid was rejected. The paper said that the DT cable assets are now valued at between $2 billion and $2.5 billion.

A Deutsche Telekom deal would significantly increase Liberty's European cable footprint. The company already owns a 76 percent non-voting stake in UnitedGlobalCom Inc. — which has control of about 10 million cable customers in Europe — and has been making moves to gain control of Telewest Communications plc, the second-largest cable operator in Britain.

On July 17, Liberty said it had canceled its tender offer for up to 20 percent of Telewest's bonds, partly because of lawsuit threats from bondholders who are unhappy with the deal. Still, Liberty already owns 6.3 percent of Telewest's bonds and a 25 percent equity interest in the company. It also has 30 days to purchase Microsoft Corp.'s 23.6 percent interest in Telewest, for about $330 million.

Liberty said bonds that had been tendered through the offering — about 17 percent of its total outstanding debt — will be returned to those bondholders.

"The continuing decline in world markets has caused us to review our priorities for additional investments," Liberty president Dob Bennett said in a statement. "In the context of this review, we have concluded that Liberty Media's interests are best served by terminating the tender offer.

"We continue to hold our equity position and the bonds we have acquired separately and we look forward to working with Telewest and its debtholders to explore the possibility of a mutually agreeable restructuring."

Analysts expect Liberty to still play a role in any Telewest restructuring, and most believe it would eventually attempt to combine the MSO with the No. 1 U.K. cable operator, bankrupt NTL Inc.

Back in May, NTL filed a prepackaged Chapter 11 bankruptcy that would split the company into two units, NTL Euroco and NTL U.K. and Ireland. Last week, the bankruptcy court set a Sept. 5 hearing date to approve the pre-packaged deal.

September