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UGC Euro Holders Don't Love Tender

Less than a month after UnitedGlobalCom Inc. offered to tender shares of its former Dutch cable subsidiary UGC Europe, shareholders of UGC Europe have lined up against the proposed sale.

Last Monday, a special committee of UGC Europe's board of directors called for shareholders to reject the UnitedGlobalCom offer, saying it was not in the best interests of stockholders.

A group of minority shareholders in UGC Europe Inc., the Dutch cable arm of UnitedGlobalCom Inc. sent a letter Oct. 17 to UGC's special committee of independent directors, calling for shareholders to reject a tender offer for UCG Europe shares.

9-For-1 Offer

UnitedGlobalCom offered to exchange nine shares of its stock for every one share of UGCE, representing a 9.8% premium for UGCE shares based on its Oct. 3 closing price.

But the minority investors – who control a combined 7.8% of UCGE stock — think the offer is "inadequate and below fair value."

UnitedGlobalCom shares were trading at $6.73 each at 4 p.m. last Wednesday, so the tender offer would value UGC Europe at about $60.57 per share, or about 5% below UGC Europe's stock price of $64 per share at 4 p.m. on Oct. 22.

In addition, the group – which calls itself the Committee to Obtain Fair Value for Minority Stockholders of UGC Europe Inc. – said it has been contacted by other larger shareholders that have the same fears.

Dennis Block, an attorney for the shareholders' committee, did not return a phone call seeking comment. Officials at UnitedGlobalCom were unavailable for comment.

UnitedGlobalCom had made the tender offer on Oct. 6, adding it would scrap the offering if it did not receive a majority of the UGC Europe shares it did not already own. UnitedGlobalCom currently owns 66.75% of UGCE shares.

With its existing stake and the tendered shares, UnitedGlobalCom had expected to control about 90% of UGC Europe stock, later effecting a short-form merger between UGC Europe and a wholly-owned subsidiary of United.

United would have then acquired the shares in the subsidiary for the same price.

UGCE was created earlier this year after Dutch cable operator United Pan-Europe Communications N.V. emerged from Chapter 11 bankruptcy protection. UGC Europe has about 6.4 million video subscribers on the continent – it is the largest MSO in the Netherlands.

UnitedGlobalCom has about 7.4 million video subscribers in several European countries.

A majority of UGC Europe shareholders are former bondholders who accepted equity in the restructuring and were expected to tender their shares in return for the more liquid UnitedGlobalCom stock.

It was also speculated that Liberty Media Corp. – which owns 75% of UnitedGlobalCom – could use the combined UGC Europe and United as an acquisition vehicle for other international cable assets.

Stifel, Nicolaus & Co. analyst Ted Henderson called it unlikely UnitedGlobalCom would boost its tender offer significantly.

"It is possible that it gets a little sweetened," Henderson said. "But I don't see them chasing this thing."

Henderson said that with Liberty Media Corp.'s decision to put its international spin-off on hold offers little incentive to do the UGC Europe deal.

Liberty, through its 75% ownership of UnitedGlobalCom, owns about 50% of UGC Europe.

'No Second Step'

"If they did the tender offer, Liberty would own about 55% [of UGC Europe]," Henderson said. "Liberty's ownership in UGC Europe doesn't change dramatically."

Henderson added that it appears that UGC Europe shareholders are willing to take their chances and hold on to their UGC Europe shares.

"If they don't want that [UnitedGlobalCom] security, they can ride the boat with a relatively non-liquid UGCE. I think that will be the mindset," Henderson said.

Henderson added that there was no strategic reason to absorb UCG Europe, adding that it is unlikely that there will be any new negotiations between the parties.

"There is no second step after this," Henderson said.