The rapid rate of buy-outs consolidations and mergers within the cable and internet businesses has continued apace over the last two weeks with major international players taking advantage of their high stock prices to buy portals and make strategic alliances. Most of these international companies have interests in the UK and Ireland. Some indications of their intentions can be drawn from recent moves.
Looking first at the larger picture the major news last Tuesday morning (19/1/98) was @Home confirming it would buy Excite in a stock deal which sent Excite's price leaping from $42.50 to $110 and @Home's price up $13.37 to $115.37. @Home chairman Tom Jermoluk said in a statement the merged company would be the "new media network for the 21st century."
Excite Inc. claims to attract more than 17 million consumers every month to its "portal" Web sites, through which consumers can navigate the Internet. The companies claim the deal will accelerate consumers' switch from telephone lines to cable systems for Internet access.
TCI and Comcast are both big shareholders in @Home, and also offer its Internet connection service along with high-speed cable modems. TCI stock rocketed 9% to $67.93 and Comcast Corp. rose 7.4% or $4.68 to $67.81, the highest points ever for both the stocks. The Excite deal also contributed to an 8% rise in the stock price of AT&T, which has agreed to buy TCI.
AT&T had been viewed as a lumbering giant unable to keep pace and slow to change. Until, that is, Michael Armstrong moved to AT&T from Hughes Electronics. Within weeks of arriving he launched a series of takeovers that changed AT&T's structure and direction. He paid $11.4 billion for Teleport Communications, a local phone carrier with a fibre-optic network, made deals with Net service providers, made an unsuccessful bid of $30 billion for America On-Line and last year he made an agreed bid for TCI which is America's second largest cable company with 21 million customers.
TCI itself has large interests in UK cable companies such as Telewest. Telewest's shares rose rapidly after the deal between AT&T and TCI as it places it in a position to move further into the cable market and exploit the technology and support of AT&T to develop digital terrestrial infrastructure and other areas of communications, which excited the market.
Another company Flextech, the largest supplier of British pay television channels after BskyB, is 37% owned by John Malone's TCI. As part of the AT&T deal, the stake in Flextech will belong to Liberty Media, Malone's television group, and once the deal with TCI closes, Liberty will have $5 billion to spend. Flextech has a 20% interest in Scottish Media Group which owns Scottish Television and had made a failed bid to take-over UTV earlier this year (it ended up selling its 18.2% stake for Stg£23.9 million to CanWest which also owns 45% of TV3 and after the sale owned 29.9% of UTV). Flextech is expected to finalise a deal to put UKTV channels (a BBC joint venture) into the NTL cable which owns CableTel in Northern Ireland.
NTL, itself has recently been invested in heavily by software giant Microsoft Corp. which is stepped up its presence in the European cable sector and on Tuesday(26/1/99), made a $300 million investment in Amsterdam, Netherlands-based cable operator United Pan Europe Communications. UPC, which owns and operates cable networks in Europe and Israel and is a subsidiary of Denver-based United International Holdings Inc., which delivers cable-based voice and data services overseas. News of the deal sent UIH's shares up 9 3/8, or 25%, to 47.
The general feeling seems to be that although cable and internet stocks are overvalued at the moment the deals will cause no great harm to the companies involved as it is one company with over-inflated stock buying another company with over inflated stock. Longer term, the skyrocketing cable stocks raise the prospect of more acquisitions as cable companies take advantage of their record high prices.
This is where it could affect Ireland these companies have interests in Irish companies and in particular are vying for Cablelink.
Princes Holdings, which is owned by Tony O'Reilly's Independent Newspaper Group and TCI was granted seven of the franchises to operate the multi-channel, multi-point microwave television distribution system, (MMDS). Companies in which Princes Holdings had a stake also won another 11 of the 29 franchises at the time the licences were given, and Prince Holdings has since taken those companies over.
The Northern Ireland based subsidiary of British Cable Group NTL, completed a £30 million, high-speed, Britain-Ireland fibre optic link last year. The company is expected to offer business telecommunications services in the Republic this year when the lines between Belfast an Dublin and Dublin and St. Annes, Lancashire are operational. Cabletel entered the market in Northern Ireland two years ago and has experienced enormous growth against BT having invested £600 million in a complete fibre optic network to service 80% of Northern Ireland by 2003. Cabletel has achieved a 40% take up of its television and telephony services with more than 50,000 phones having been connected and the fastest area of growth is interconnect with other operator passing their traffic through NTL Cabletel.
Princes Holdings and NTL CableTel have already made it clear that they is interested in buying Cablelink Cablelink was set up 30 years ago and is 75% owned by Telecom Eireann and 25% by RTE. Both semi-states have been instructed to sell their holding to facilitate greater competition in telecommunications and obviously much of the value of Cablelink lies in the potential for its network to be used for telecommunications rather than the traditional TV channel business. The sale was suppose to take place late last year but was delayed because of disputes between the Telecommunications Regulator and cable companies over the terms of new licences which has now been resolved.
Analysts have predicted that the company could make as much as £230 million balancing the cost of upgrading Cablelinks old cable network estimated to be a possible £150 million against very high penetration in the greater Dublin area of 330,000 subscribers valued at £1,000 per connected house (based on UK valuations). Dublin-based firm of solicitors, Arthur Cox, has been appointed as legal advisors to Telecom Eireann and RTE on their shareholdings and will work with British investment bank NM Rothschilds & Sons which was appointed financial advisor to both shareholders. The Sale of Cablelink should now take place by public tender as soon as possible.
One of the major questions for companies interested in purchasing Cablelink is the scale of the upgrades necessary to the system. As the company is not a public utility it does not have wayleave and has built up its infrastructure over the last 30 years with the goodwill of property owners. In newer estates, suburbs and satellite towns this does not present a problem as the cable pipes were laid as the infrastructure and amenities were built, but in the city centre areas it poses a major head ache particularly with the amount of development and construction in the city at the moment. Contractors will rip out Cablelink router cables at the drop of a hat if the get in the way of a job. Property rights are a strongly held constitutional issue which would require primary legislation to amend and that is not going to happen.
Owen Lambert, managing director of NTL Cabletel Northern Ireland in an interview last year specifically pointed to this issue wanting to know just how much protection a potential buyer could expect when upgrading the network. Any company buying Cablelink has a major infrastructure upgrade on their hands.
Michael McMahon 28/1/99
