Copyright 2002 The Deal L.L.C.

The Daily Deal…11/19/2002


John Malone's Liberty Media Corp. encountered another setback on its European cable march with the undoing of a 750 million ($756 million) deal to acquire Dutch cable operator N.V. Casema.

The deal, announced Aug. 1, once promised to give Englewood., Colo.-based Liberty 60 percent of the Dutch cable market. Under the agreement, the 1.4 million paying customers of Casema, which is owned by France Telecom, would have joined the 2.3 million Dutch subscribers that Liberty already controls through its United Pan-Europe Communications NV.

Not surprisingly, the announcement of the Liberty-Casema agreement triggered a review by the Netherlands Competition Authority. The antitrust watchdog was still investigating Liberty's expansion into the Dutch cable market as of Monday, Nov. 18, even though its review of the proposal already extended beyond the merger agreement's Oct. 31 expiration date.

Despite the regulatory concerns, which were heightened earlier this month when the competition overseer forced the review into a usually unnecessary second phase, Liberty blamed the deal's breakup on the failure of negotiations with France Telecom. Although they had been holding "discussions since the October 31 termination date," Liberty said in a statement, "the parties were unable to come to terms on a new agreement that were acceptable to Liberty Media."

France Telecom said in a statement that it "confirms its intention to divest Casema and has already re-entered into discussions with potential acquirers."

Liberty's surrender surprised many, given that Liberty and France Telecom individually expressed confidence in consummating the deal as recently as a week ago. A statement by the would-be seller about being "confident about the final decision" seemed particularly reassuring and indicated that a rival bidder, the Carlyle Group of Washington, D.C., would be kept at bay.

Carlyle declined comment on Liberty's move. But the private equity firm has previously expressed interest in resuming discussions with Casema should the Liberty bid fail.

For Liberty, the deal's demise represents a second setback to its foray into the European market. Since splitting off from AT&T Corp. in August 2001, the company moved surprisingly quickly to establish its cable supremacy overseas by acquiring 13 million mostly European subscribers through a 72% stake in Denver-based UnitedGlobalCom.

The $2 billion deal was meant to complement a similarly timed $5.7 billion transaction with Deutsche Telekom AG that would have given Liberty an additional 10 million German customers. But the DT deal, which would have brought another six regional cable operators into the Liberty fold, was blocked in February by Germany's Federal Cartel Office.

It's now moot whether the Netherlands Competition Authority would have acted in concert with the German cartel office. But with the Casema deal off, Liberty's European offensive appears to have stalled.

Malone and his managers must not only reassess a thicket of European regulation that belies the Continent's potential as a cable market on a par with that of the U.S. but also placate negotiators and regulators who seem to be increasingly difficult to please. Then, too, there are some unpleasant economic realities to deal with.

Even UnitedGlobalCom, Liberty's startup vehicle for European dominance, has been busy working out a recap for lead subsidiary United Pan-Europe Communications NV - the cable operator whose presence in the Dutch market stirred up regulators about Liberty's expanding that presence with Casema.