It’s about time NTL restructured, allowing it to focus on its business and not on juggling its debts. While the collapse of the Liberty deal is disappointing, in that it further delays the prospect of a merger with fellow UK cable operator Telewest, the bondholder negotiations should still allow NTL to survive. A merger between the two companies would then be feasible.
NTL has rejected a $2 billion bid from Liberty Media in favor of negotiations with bondholders.
It emerged Tuesday evening that US cable giant Liberty Media proposed a $2 billion restructuring plan for troubled UK telco NTL. However, NTL rejected the proposal last week, claiming the deal was better for Liberty than for shareholders or bondholders.
Liberty would have given most of the cash to bondholders, who are owed a total of $11 billion, with the remainder paying NTL’s restructuring costs. But Liberty would have taken 50% of NTL for its money. Instead, NTL looks set to negotiate directly with its creditors. It’s in talks over a deal that would give bondholders around 95% of NTL shares. It may also be able to raise $500 million working capital.
Either deal would be good news for the UK digital TV industry. NTL’s core business is sound, but the company has been on a financial precipice for the last year. Instead of focusing on its business, it has been forced to manage its huge debts, incurred by making acquisitions with borrowed cash at the height of the TMT boom.
After a restructuring, both NTL and the other UK cable company, Telewest will need to boost revenues while keeping a close eye on costs. Customer acquisition is no longer a priority, leaving satellite giant BSkyB in a position to pick up the most attractive of ITV Digital’s subscribers if the terrestrial digital platform fails.
Instead, NTL and Telewest’s priorities should be customer service and technology enhancements that raise revenue per user (such as broadband Internet and interactive TV). Since they are not in competition, and many of these cost centers are national rather than regional, the best move could be a merger. This was an argument in favor of the Liberty deal, since Liberty already owns 25% of Telewest.
However, the merger is not dead. In the past, investors have worried that NTL’s debts would drag Telewest down too – but two restructured companies would be in a much better position to join up, even without Liberty CEO John Malone’s hand at the wheel.
Related research: Datamonitor, 2001: iTV Revenue Streams and Business Models