Telewest-NTL merger under threat

SHAREHOLDERS in cable giant Telewest could take legal action to block its planned £5.6 billion merger with NTL if the company fails to gain sufficient value for its television subsidiary, Flextech.

City sources close to the business say the dispute between NTL and Telewest over the value of Flextech and its future within an enlarged group could lead to the deal being blocked if Telewest's US shareholders are not satisfied with the outcome. The merger is now expected late next month.

Flextech's main asset is UKTV, a 50:50 joint venture with the BBC that includes channels such as UK Gold. It has been variously valued at between £450 million and £1 billion and NTL has insisted Telewest put a firm valuation on the business before merger talks begin.

Flextech is the second most valuable programme content business in digital television after BSkyB.

Telewest has always indicated that it considers Flextech a key part of its business, but NTL chief executive Simon Duffy said recently that he believes cable companies and television content businesses do not belong under the same roof.

One City source said: 'If Telewest decides it is being forced by circumstances to sell Flextech to complete the merger, potential buyers will put in low bids and that is going to be very difficult to explain to shareholders. The threat of legal action is a real one.'

Both NTL and Telewest are quoted on the New York Stock Exchange.

Telewest might decide to float part of Flextech on the stock market instead as this would allow it to realise value while retaining control.