France Telecom Invests in NTL to Finance Cable & Wireless Communications Bid

France Telecom has struck a deal with UK cable operator NTL, investing $1 billion for a 10% stake in the company. This alliance aims to help NTL finance a bid for Cable & Wireless Communications (CWC), potentially creating two of the UK's largest cable operators. However, this partnership also raises concerns for NTL's investors, as it may lead to an expensive auction for CWC, rather than a more cost-effective merger.

Key Takeaways:

• NTL requires significant financing to purchase CWC, with a minimum of $1.75 billion needed, at least a quarter of which must be in cash.
• The deal with France Telecom provides NTL with the necessary funding to remain a contender for CWC, but also means a potentially costly auction.
• France Telecom's investment gives the company a 10% stake in NTL, with the option to increase its holding if NTL acquires CWC.
• Cable & Wireless is reserving the right to reclaim the old Mercury long-distance network, worth approximately a quarter of CWC's value, as part of the deal.
• NTL's investors are mixed in their assessment of the deal, as it keeps the company in the running for CWC but may lead to a more expensive acquisition.
• France Telecom's investors are puzzled by the deal, as it gives the company scale in the UK residential market but lacks a clear return on investment.

Statistics:

• $1 billion: The amount invested by France Telecom for a 10% stake in NTL.
• $1.75 billion: The minimum amount NTL needs to purchase CWC, with at least a quarter of this in cash.
• 10%: The initial stake in NTL purchased by France Telecom, with the option to increase this holding.
• £7.5 billion: The total sum required to purchase CWC, excluding the value of the Mercury long-distance network.
• 25%: The approximate value of the Mercury long-distance network, which C&W reserves the right to reclaim.

Sources:

• "France Telecom's £645m sweetener for NTL" - Financial Times Limited, Copyright 1999. All Rights Reserved.