Liberty, UnitedGlobal in $3.48B Broadband Deal

Liberty Media Group (NYSE: LMGA), the cable television arm of AT&T, announced Monday that it will combine broadband assets with UnitedGlobalCom, Inc. (Nasdaq: UCOMA) to create the world’s largest cable television company outside the United States.

In a complicated deal worth $3.48 billion (US$), Liberty agreed to become United’s largest shareholder, according to company officials. The deal gives Liberty a 45 percent ownership stake in one of the largest high-speed communications companies in the world, with interests in Europe and Latin America.

The agreement comes on the heels of a legal victory for AT&T. Last week in Portland, Oregon, an appeals court overturned an earlier ruling that would have forced AT&T to open its high-speed Internet infrastructure to competitors.

‘Creating Scale’

Led by cable pioneer chairman John Malone, Liberty has been buying stakes in companies that enable AT&T to extend its global reach.

United is the largest broadband communications provider of video, voice and data services outside the United States, with operations in 26 countries that reach nearly 26 million homes and businesses. Its high-speed Internet access business has more than 200,000 accounts.

“We have often stated Liberty’s goal of creating scale in the business of broadband distribution,” Liberty president and CEO Robert Bennett said. “With scale, broadband distribution assets can be very attractive in their own right and they also can serve as a platform for the creation of content assets.”

Latin America Moves

The agreement calls for United to acquire certain Liberty international broadband distribution and programming assets in exchange for $200 million in cash and 75.3 million shares of United’s Class B common stock. Those stocks are not traded, but have 10 times the voting rights of the company’s publicly traded Class A shares, which means Liberty has a 38 percent economic stake and a 72 percent voting interest in the company.

The Liberty assets to be acquired include: a 25 percent economic interest in Telewest Communications plc (London: TWT; Nasdaq: TWSTY), the second largest broadband communications provider in the United Kingdom, and a 28 percent stake (with a right to increase to 50 percent) in Cablevision S.A. of Argentina, the largest cable television operation in Latin America.

Other assets include: 100 percent ownership of Pramer SCA, which owns and/or distributes 18 channels mostly in Argentina; a 40 percent stake in Torneos y Competencias S.A., the leading provider of sports and entertainment programming in Argentina; and the Latin American operations of the Gems Network.

“It is our intention to consolidate these interests potentially with existing partners and other operators, into a regional holding company which could seek a public listing in the months ahead,” United president and COO Mike Fries said.

Higher Profile for Liberty

The announcement gives Liberty a higher profile than it has known in the past. The company is often overlooked by investors, according to Kiplinger’s Personal Finance Magazine. Liberty owns large stakes in a number of television programming companies such as Time Warner, Black Entertainment Television (BET), and Discovery Channel parent Discovery Communications.

The deal is subject to regulatory approval, as well as shareholder and third-party approval. Company officials said they expect the transaction to be finalized late this year.