A private equity consortium has approached UK cable company NTL about a potential 10 billion pound ($19 billion) take-over, but there are no serious talks underway, sources close to the deal said on Thursday.
The approach, which if successful would be the largest ever European leveraged buyout, is being led by US buyout firm Providence Equity and includes US firms Kohlberg Kravis Roberts and The Blackstone Group as well as Britain's Cinven.
"It's still in the early stages," one of the sources said.
Another of the sources said there were no structured talks scheduled and that no formal process had started.
"Even assuming the private equity guys come with a serious offer, this would take time. It's not going to happen overnight," the source said.
NTL, KKR, Blackstone and Providence declined to comment. Cinven was not immediately available. The cash-rich private equity firms have been circling NTL for months and approached the company last year before it closed its $6 billion acquisition of smaller UK cable firm Telewest.
"The time is ripe for a transaction like this given the low interest rate environment, the company's flexible capital structure and its diverse asset mix, including a content business, which could be monetised as part of any financing package," UBS analyst Aryeh Bourkoff told Reuters.
NTL shares were up 0.64 percent at $26.72 on Nasdaq by 1625 GMT after climbing nearly 9 percent on Wednesday, valuing it at about $8 billion. It had net debt of 5.4 billion pounds as of June 30.
One of the sources said it would be difficult to reach agreement on valuation, because NTL believes its stock price does not reflect the value of synergy benefits to come from its Telewest and Virgin Mobile acquisitions.
"This would not be the time of their choosing (for a deal)," the source said. Bourkoff estimated that NTL's fair market value was about $34 per share.
"I do think it's the fiduciary duty of the board and the management team to sit down with any real offer to try to narrow the discount between today's market price - which we think is overly discounted - and our view of the fair value," he said.
NTL is faced with an increasingly difficult competitive climate as it battles with rivals BSkyB and BT to offer bundles of TV, broadband and phone services. It said earlier this month that it lost a net 18,900 customers in the second quarter.
The cable operator completed its 961 million pound acquisition of Virgin Mobile last month, making billionaire entrepreneur Richard Branson the cable company's biggest shareholder and giving him a seat on its board.
That deal included a clause that blocks Branson from backing a sale or merger against the board's wishes but allows him to vote against one.
"As a shareholder we know nothing of any approaches," said a spokesman for Branson's Virgin Group. "We're very content with our investment and look forward to growing the business."
Another major NTL investor is WR Huff Asset Management, headed by New Jersey-based hedge fund manager William Huff, with two seats on the board. The firm cut its stake in NTL to 7.8 percent from 8.8 percent in June. The bid approach comes as private equity firms, which buy companies using mostly debt, have raised billions in fresh funds and are competing in ever larger deals. Cable companies are a favourite target, in part because they produce a steady stream of cash that can be used to repay debt. A deal for NTL would surpass last year's $14.1 billion take-over of Danish telecoms firm TDC by firms including Blackstone, Providence and KKR. Private equity firms typically put up one-third cash and borrow the rest in a leveraged buyout.
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