Cablelink could fetch £400 million (€508 million) or more when the final bids are submitted, industry sources now believe. The mainly Dublin-based cable company has already attracted initial, non-binding bids of up to £360 million.
The five interested companies enter the second round of bidding next week and must submit their final offers by April 23rd. It is understood that the winning bid will be decided only on price, and not on a combination of price and the business plan, as some Government sources have indicated.
Meanwhile, several parties are engaged in detailed talks to see whether they should merge to submit a joint offer on a final bid. It is understood that Cable Management Ireland (CMI) which has bid for Cablelink, may talk with the TCI Ireland consortium, with a view to bidding jointly in the final round. TCI Ireland is 75 per cent owned by Tele-Communications Inc, the largest cable group in the US, and Princes Holdings, a subsidiary of Independent Newspapers. These two companies own the Irish Multi-channel franchise, which has 150,000 subscribers in the Republic.
CMI is a small company, which has 60,000 subscribers, many of whom are in the Malahide/Swords area of Dublin and North Kildare. It also provides services in many other areas including Wicklow, Mullingar and Kildare. It is seen as attractive because it has franchises in areas of population growth and a merger with TCI would extend the reach of Irish Multi-channel. This would be especially beneficial if it could be combined with Cablelink, which has 350,000 subscribers, the majority of them in Dublin.
All parties are saying little about their proposals - one bidder, NTL, whose subsidiary Cabletel, is cabling Northern Ireland, has not even publicly acknowledged it is chasing the franchise. Those who submitted indicative, nonbinding bids last week, are CMI, (whose major shareholder is Legal and General Ventures), Princes Holdings/TCI, NTL, Esat Telecom and United Pan-Europe Communications (UPC), a Dutch-based cable group with a US parent.
A suggestion by the UPC vice-president of new business, Mr John Riordan, earlier this week that the price might go down, rather than up has been dismissed by those close to the bidding.
"Those were starting bids," said one source, "the clear answer is that the price can only go up."
Last week, Telecom Eireann, a 75 per cent shareholder in Cablelink said there had been five bids. The lowest bid was £250 million the highest £350 million.
Mr Riordan suggested that when due diligence was done, the final price offered could end up being lower than the indicative bids. Cablelink is attractive but will require around £200 million to upgrade it to carry services such as home shopping, video on demand, full Internet facilities and telecommunications. However, this is a figure that advisers to Cablelink have estimated - some argue that the figure could be higher.
The bidders are expected to start the due diligence next week. They will be given access to what is known as a data room, where they can obtain all documentation and financial information relevant to Cablelink. They will also hear presentations by Cablelink management on the company's performance to date and future potential.
Once this process is over, and any further queries answered, the companies will talk to their own advisers and submit final, binding bids. The companies do not have to submit business plans, although clearly they have drawn up their own plans to develop the services to make the returns needed to justify their bids.
NM Rothschild which is advising Cablelink on the bids, will only say that it is pleased with the level of response and the number of bids - even though there were initial suggestions that up to 10 bids would be received.
"The five bids were from some of the most competitive companies, all with the most reasons to want the business," said one source.
It is understood that Rothschild will be pushing hard on price. It is said to see its job as achieving the highest price possible. Once this is achieved it will carry out its own checks on the successful bidder to ensure it has the money to pay for Cablelink.
The TCI/Princes consortium is seen as a strong contender, because its majority shareholder has the backing of US telecoms group AT&T. "Make no mistake, the real competition is going to be on the telecoms side of the market," said one source.
The consortium also has deep pockets, because of its TCI/AT&T link. TCI in the US has been bought by AT&T for $48 billion (€44.02 billion).
The consortium - which has played down its Independent Newspapers link - has said it will be able to offer television, telephone and Internet services within three years to more than 90 per cent of households if it wins the franchise. It is placing strong emphasis on the fact that it could provide services on a nationwide basis, not just within the franchise area, if it could combine its existing business and Cablelink.
CMI has said it will provide telephony and Internet services as well as enhanced television services. It promises to offer consumers unlimited local telephone calls and Internet access for a fixed monthly subscription.
Esat Telecom is reportedly having difficulty finding a suitable partner. It is thought the company could not mount a final bid on its own. It is understood that its chairman, Mr Denis O'Brien, sought partners in the US.
However, in its favour Esat has a national network running along the railway lines to the Republic's major cities, a network in Dublin, a good brand name, and a track record. It could link Cablelink to its existing network.
Although Esat may be having problems, nobody is writing off the company's ability to mount a credible bid. Esat sources shrug off the rumours of difficulties. "That's what they said when we bid for the second mobile phone licence," said one source.
Analysts say Esat must mount a strong bid for Cablelink because it could be vulnerable if it does not win the franchise, through increased competition on the telephony side. Esat has been steadily building its own portfolio of services and buying Cablelink would complete its positioning as a full service communications company.
UPC is also seen as a serious contender. It floated on the Nasdaq last month and has 3.4 million subscribers. It operates in the Netherlands, Austria, Norway, Belgium and France. Vice-chairman of new business, Mr Riordan, who knows the Irish cable business well, having represented UPC's parent when it was a shareholder in Princes Holdings, believes his company has a very good chance of winning the Cablelink franchise.
He says UPC is the first cable group to provide what he calls triple play service - television, Internet and telephony facilities down one line. He says UPC is "ahead of the game" and can provide mass communications at affordable prices.
UPC has said it will offer full service, broadband Internet services for a flat fee. It would also link with existing telecoms providers rather that than build its own infrastructure. "Building infrastructure is not the business we are in," said Mr Riordan.
Ironically, Mr Riordan has said that if successful, UPC would be interested in acquiring Princes Holdings, to complete a national network. It is an indication of what may happen when Cablelink is sold. The sale will undoubtedly herald a shake-up in the Irish cable market, as the losers consider whether they should merge and with whom, to progress their own futures - something which all have admitted privately.
NTL, whose subsidiary Cabletel is rolling out telephony, internet and cable services in Northern Ireland, has not divulged its plans. It is known to be keen to win the bid. One source said the company had been making presentations to possible investors in the US, saying that it had been "invited" to bid for Cablelink. Although probably technically true, this irked some of its rivals. "They seem sure they will win it," said one source.
Another source said the company would launch an "aggressive" bid in the second round. "They like the auction process," said the source, pointing out that its bid to win the Northern Ireland franchise far outstripped that of its rivals at the time.
NTL started rolling out its services in Northern Ireland three years ago and now claims to have 60,000 residential customers. It also has 5,000 corporate customers. It is still building in the greater Belfast area and in Derry where it expects to complete the network by April.
NTL is quoted on the Nasdaq and in January it received a major boost when Microsoft invested $500 million in the group. Microsoft has also invested money in UPC.
One rival bidder said NTL had to be seen as the favourite. Whoever wins, one thing is certain - the company will need very deep pockets, not just to win the bid, but to bring information age services to the public as quickly as possible. It is only then it will begin to make a return on its investment.
