Telewest rises from the ashes and issues shares in new firm

Telewest's £3.5bn financial restructuring is expected to be completed by the end of June or the beginning of July, paving the way for a merger with NTL, its counterpart in cable services, by the end of this year or the first quarter of 2005.

More details emerged yesterday of Telewest's plans for a debt-for-equity swap which it has agreed with its syndicate of banks. The company intends to make court applications on the 22 and 23 of April to begin the process of having its debt cancelled. It is then expected to convene further creditor meetings at the beginning of June that will allow it to return to the courts for final approval by the end of June.

The company will then issue shares in a reconstituted Telewest company by mid-July, a move that will mark the completion of the refinancing.

In an announcement yesterday, the company said that its restructuring would involve issuing shares to its creditors in a new US holding company called Telewest Global, to be based in Delaware.

Analysts believe that following the restructuring, Telewest shares will be left to trade for about six months to establish their market value before a merger with NTL is proposed.

Many of the shareholders in Telewest Global will be the same banks that hold shares in NTL, which emerged from Chapter 11 bankruptcy protection in January last year. It is thought that the high degree of overlap between the two companies' share registers will be crucial in driving forward merger plans. The market will also want a chance to assess the comparative strengths of each company's management before deciding which will run the combined group or if outside management talent is needed.

One analyst said yesterday: "What is certain is that with a balance sheet that makes them [Telewest] financially viable, they have got a shout. Without it they wouldn't have had a chance."

However doubts persist over whether Telewest and NTL can turn cable services in the UK into a real competitive threat to British Sky Broadcasting (BSkyB) in pay television and to BT Group and other alternative operators in the market for residential telephone and high-speed broadband internet services.

"Telewest and NTL will be allowed to merge because they are seen as minnows," said another media analyst. "But in fact they should be colossal giants, given the fact that they were granted local monopolies covering 70 per cent of households in urban areas."

The cable companies embarked on a rapid process of consolidation in the 1990s but failed to generate sufficient revenues and cash flow to keep up repayments on the debt needed to buy out their UK rivals. They were also forced to spend heavily to dig up roads across the country and lay their cable networks. Although that process is complete and Telewest and NTL claim that future upgrades can be carried out without disruption, it has brought Telewest to the brink of collapse and forced NTL to seek the protection of US bankruptcy laws.

Critics argue that management at the companies have failed to deliver a compelling consumer proposition even though the companies pride themselves on being able to supply television, telephone and broadband internet services bundled together.

BSkyB claims that its 6.8 million digital satellite customers are double those of all cable TV subscribers, and BT has yet to see the cable companies make significant inroads into its dominance of the residential fixed-line telephony market. BT has about 75 per cent of the market and its biggest threat appears to be from Tesco and Carphone Warehouse's TalkTalk service rather than cable companies.