NTL - The M&A Roller Coaster

The meteoric rise of NTL from market entrant to the biggest player in the British cable industry in a mere five years raised a lot of eyebrows, especially when its CEO set his sights on acquiring Cable & Wireless Communications (CWC) in 1999. If successful, this would mark one of the largest takeovers in British corporate history.

by Philippe Haspeslagh,Peter Williamson
Last Updated: 23 Jul 2013

Professor of Asian Business and International Management Peter Williamson and the Paul Desmarais Professor of Partnership and Active Ownership Phillipe Haspeslagh present a compelling case history of NTL's acquisition of CWC, regarded at the time as having the potential to transform not only the UK cable sector, but reshape the entire British communications industry.

The meteoric rise of NTL from market entrant to the biggest player in the British cable industry in a mere five years raised a lot of eyebrows. President and CEO Barclay Knapp already had a reputation as a highly ambitious iconoclast when he set his sights on acquiring Cable & Wireless Communications (CWC) in 1999. If successful, this would mark one of the largest takeovers in British corporate history, and represent a radical new phase in the atypical national telephony sector.

Professor of Asian Business and International Management Peter Williamson and the Paul Desmarais Professor of Partnership and Active Ownership Phillipe Haspeslagh present a compelling case history of NTL's acquisition of CWC, regarded at the time as having the potential to transform not only the UK cable sector, but reshape the entire British communications industry through its ability to merge telecom, pay television and internet services into one customer package.

Unlike mainland European firms, British service providers began offering a "triple play" of these three services as soon as they became commercially available in the 1990s. NTL had been at the forefront in offering "bundled", fully integrated customer packages, giving the near ubiquitous British Telecom a run for the money on call pricing. Pay TV behemoth BSkyB, however, was a harder nut to crack. Most of its customers received all terrestrial channels, and several premium cable networks.

The (A) case describes NTL's initially cautious foray into the British market in 1993, exploiting the idiosyncratic nature of telephony-based service provision in the country at the time. Three years later, NTL greatly impressed both its competitors and the UK authorities in buying a specialist broadcast transmission firm, becoming the first player in Britain to move beyond its core business. Knapp then embarked on a flurry of acquisitions intended to consolidate the UK cable industry.

His only major setback was the merger of the four firms that came to be CWC, preventing a desired buy-out of one of the members. Nonetheless, NTL succeeded in expanding the metrics of market penetration while keeping its "churn rate", (the percentage of customers cancelling services) at half the national average over the next few years.

The (A) case illustrates how, with the environment so bullish during the glory days of the internet boom, many pertinent issues regarding NTL's essential corporate health were not being sufficiently scrutinised by shareholders, nor by governmental authorities. While the company's debt levels were generally seen as excessive, its business model was rapidly becoming the industry standard.

In 1999, NTL succeeded in exploiting frustrations that had developed between struggling CWC and its initial suitor, international giant Telewest. Despite CWC's rather blunt declaration that NTL could either accept that Telewest's due diligence research would have to suffice, or forget any deal, the former firm won the £8.2 billion bid.

The case concludes with analysis of how this massive acquisition was received by the British regulators, financial markets, and the managers of both firms who were forced into trying to reconcile two very different business cultures.

The (B) case details the extreme problems the integration process presented for senior executives in the newly merged entity. Desires for regional integration were offset by perceived needs for national branding and cost benefits that might only be possible through staying centralised.

Meanwhile, technical problems were plentiful. But more distressingly, the telecom climate was to take a disastrous turn for the worse for the entire industry in 2000. The case concludes with a description of how, even as the NTL/CWC merger proved a catastrophe, further consolidation within the industry as a whole was still a very attractive option for NTL and other major players.

(Note: NTL has not only risen from the ashes in the past year, but as the case predicted, has entered into merger negotiations with its only surviving rival in the UK, TeleWest, to come to dominate the sector.)

INSEAD 2005

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