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LMI to Acquire the Rest of UGC

Liberty Media International Inc. said it has agreed to acquire the remaining interest in UnitedGlobalCom Inc. that it doesn’t already own in a stock swap valued at about $3.5 billion, or $9.42 per UGC share.

According to a press release, LMI and UGC each will become wholly owned subsidiaries of a newly created holding company, Liberty Global Inc.

According to the statement, each share of LMI will be exchanged for one share of Liberty Global. Each share of UGC will be exchanged for either 0.2115 shares of Liberty Global or $9.58 in cash. However, LMI will limit the cash awards to 20% of the total deal.

LMI already owns a 53% equity interest in UGC and controls 90% of the vote.

The combined Liberty Global would include LMI’s interests in Japanese MSO Jupiter Telecommunications Co. Ltd., Japanese programmer Jupiter Programming Co. and cable systems in Latin America.

UGC is the largest MSO in Europe, with about 9.1 million video subscribers in 12 countries on the continent. The company also owns cable systems in Asia and Australia.

Liberty Global will have a 10-member board of directors, headed by LMI chairman John Malone, who will have the same position at Liberty Global. UGC president and CEO Mike Fries will hold the same post at Liberty Global.

“As demonstrated by the new name of our company, I view this transaction as a merger of equals creating one of the largest broadband-services companies outside of the United States.” Malone said in a prepared statement.

“In a very short period of time, we have disposed of nonstrategic businesses and put in place a simplified structure from which our operating businesses can focus on their respective markets including Europe, Japan and Chile,” he added. “From this structure, I am confident that Mike Fries and the rest of the management team can create value for our shareholders through internal growth and prudent acquisitions.”
LMI said in a statement that the merger has been approved by a special committee of independent directors at UGC, but it still needs approval from LMI and UGC shareholders. The deal is expected to close in the second quarter.

Analysts have been anticipating the deal for months, but most believe the LMI offer will have to be sweetened.

In a research report, Lehman Bros. Inc. analyst Vijay Jayant wrote that the offer will likely have to be raised, since at $9.42 per share (and $9.58 for the cash offer), the deal is below UGC’s closing price Jan. 14 of $9.64 per share.

UGC shares were trading at $9.71 each, up seven cents, in afternoon trading Tuesday. LMI shares were down 11 cents each to $43.58 apiece.