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Telewest, NTL Eye General Amid U.K. MSO Consolidation

London -- Britain's ever-shrinking list of major MSOsis expected to drop from seven to five if a complex series of talks under way among fourof the industry's leaders results in new deals.

General Cable, Britain's fourth-largest MSO, becamethe latest takeover target last week, with both No. 2 Telewest Communications plc and No.3 NTL U.K. Group Inc. tabling offers for the MSO.

A General spokeswoman would only comment, "We have notmade any statements since Feb. 23." That was the date when General first confirmed tothe London Stock Exchange that it was in talks about a sale or merger, she added.

General's stock has soared in the past two months,from 80 pence ($1.32) per share to about £1.52 ($2.51) in U.K. trading. That'snearly double the stock's 52-week low of 77.5p ($1.27).

However, maneuvers last week by Telewest as part of its bidfor General may upset another U.K. cable-operator merger that was announced in February,between NTL and Comcast U.K. Cable Partners Ltd. That deal had finally emerged more thanone year after Comcast began exploring a sale or merger.

Telewest threw a wrench in the NTL/Comcast merger last weekby indicating that it plans to trigger clauses to take control of two major franchises, inLondon and Birmingham, that Telewest jointly owns with Comcast.

Telewest acknowledged that it is planning to buy the 50percent stake that Comcast owns in Cable London (Telewest owns the other half), and toraise its stake in the Birmingham franchise from 27.5 percent to 55 percent. General Cableowns the other 45 percent of the Birmingham properties.

That would rob NTL of two of the gems that motivated itsFeb. 5 $600 million share-swap offer for Comcast.

Telewest's move to pay about $335 million for theComcast franchises came just as talks between NTL and General were heating up, withspeculation that NTL would formally bid about $907 million in stock to acquire General.Telewest reportedly was ready at press time to table a bid of about $948 million in orderto topple NTL's talks with General.

None of the companies involved would talk publicly aboutpreparing any offers for General, which is 38 percent-owned by France's CompagnieGenerale des Eaux. CGE has been looking to sell its U.K. cable holdings for some time.

By exercising its rights to buy out Comcast's share inthe Birmingham franchise, Telewest put itself in a better position to merge with Generalbecause of the ownership link between them in the Birmingham operation -- one ofBritain's largest, with more than 500,000 subscribers. That will also help Telewestto match the size of Cable & Wireless Communications -- Britain's No. 1 MSO, anditself the result of a merger between four MSOs.

NTL, on the other hand, is hoping to acquire both Comcastand General in order to establish itself as an MSO more in line with Telewest and CWC. NTLwould emerge with 4.5 million homes under franchise if it gobbles up General and Comcast,compared with Telewest's 4.4 million and CWC's 5.9 million.

For the past year, the biggest new merger in Britain wasexpected to be a combination of Telewest and NTL to create a new No. 1 MSO in the UnitedKingdom that would be larger than CWC. However, talks between Telewest and NTL have brokendown, and the two are now reduced to fighting over the other key assets left in theBritish cable market.

Shares in both NTL and Comcast have also surged over thepast two months, in part due to positive market reception of the NTL/Comcast merger, andin part due to a highly successful $1.3 billion bond offer by NTL.

Telewest shares continue to be stalled. A reflection of theurgency to turn around Telewest came last week in results released by TCI Ventures Group,the holding company in which Tele-Communications International Inc. (TINTA) has placed its27 percent share of Telewest.

The company reported that the value of its stake inTelewest had dropped from $488 million at the end of 1996 to $324 million at the end of1997 because of the tumble in Telewest's stock price.

Moreover, TCI Ventures' share of the losses fromTelewest increased from $109 million in 1996 to $145 million in 1997.

The U.K. market has been raging with speculation aboutTelewest's future, including one scenario posed that British Telecommunications plcmay make a bid to take over Telewest completely.

Other scenarios have mostly centered on one ofTelewest's shareholders -- usually U S West International Inc. -- moving to buy outTCI Ventures and/or other partners, which include Cox Communications Inc. and SBCCommunications Inc.