Copyright 2003 The Deal L.L.C.

The Daily Deal...02/20/2003

Cable tycoon John Malone on Wednesday, Feb. 19, tightened his grip on his main European asset, United Pan-Europe Communications NV, after most of the company's creditors approved a US$7.2 billion debt-for-equity swap.

Amsterdam-based UPC, Europe's largest cable operator by subscriber numbers, said 99.9 percent of creditors have voted in favor of the Chapter 11 proceeding under which Malone-controlled UnitedGlobalCom Inc. would take a 65.5 percent stake in UPC.

Malone controls UGC through his Englewood, Colo.-based investment vehicle, Liberty Media Corp. UGC now holds 76 percent of UPC's almost worthless shares as well as a majority of the company's bonds. Malone began increasing his ownership of those bonds last year as a way to maintain control over the company after it entered bankruptcy protection in September.

Other UPC bondholders will get 32.5 percent of the equity in the newly restructured company, while its existing shareholders will get just 2 percent. The plan involves UPC shedding two-thirds of its total net debt. It accumulated that debt in the late 1990s and 2000 during the telecom boom, when the U.S. run company invested heavily in pursuit of an ambitious "triple play" strategy that aimed to win over consumers with an integrated offering of high-speed Internet access, telephony and cable TV.

UPC also said it will delist its shares from Euronext Amsterdam after completing its restructuring, with its assets and management transferred to New UPC. New UPC, with more than 7 million subscribers in countries from Norway to Hungary, would only be listed in New York.

UPC said that a hearing will take place Feb. 20 in a U.S. court that will confirm the company's plan of reorganization. The restructuring, which was launched in 2002, is proceeding in parallel both under U.S. Chapter 11 regulations and under Dutch bankruptcy law.

UPC said Dutch creditors will meet Feb. 28 and it hopes to complete the entire restructuring process by the end of March.

Following a series of high-profile disappointments, the restructuring at UPC offers Malone an opportunity to kick start his involvement in European cable once again.

The tycoon last year failed in attempts to buy cable operators in Germany and the Netherlands and also saw his bid to buy bonds in U.K. cable operator NTL Inc. rebuffed. Malone retains a 25 percent stake in NTL's smaller U.K. counterpart Telewest Communications plc and holds about 8 percent of Telewest's bonds. Those holdings are likely to be transformed into an 8 percent equity stake under a proposed debt-for-equity swap at Telewest.

Liberty said last week that it will keep an eye on future opportunities in the European cable market.

Lazard's Richard Stables and J.P. Morgan's Andrea Salvato are advising UPC on the restructuring, with counsel from Allen & Overy and White & Case LLC. UGC's financial advisers are UBS Warburg and Credit Suisse First Boston. Greenhill & Co. is advising a committee of third-party bondholders.