United Artists, United Cable Plan Merger : Terms Seem to Satisfy Some Investors Who Opposed Earlier Deal

United Artists Communications and United Cable Television on Wednesday announced an agreement to combine in a new company that would rank as the nation’s third-largest cable-TV operator. The merger also strengthened the grip of Tele-Communications, the nation’s largest cable operator, which will own 52% of the new entity.

The terms of the deal appeared to satisfy some outspoken investors who attacked an earlier merger proposal that would have paid no cash.

If debt of $400 million is included, the deal appears to be worth about $2 billion. The transaction is expected to close in the latter half of 1988 if shareholders and regulatory agencies approve.

Under the terms announced Wednesday, United Cable stockholders can elect to receive, for each of their shares, either $35 in cash or a “unit” consisting of one share of United Artists Communications stock and a separable right, or “put.” The right entitles the shareholder to sell to Tele-Communications at certain points in the future a share of United Artists stock at 90% of its private market value. The value would be determined on a “going concern” basis or a liquidation basis, depending on which yields the greater value.

Last October, United Cable shareholders would have received shares in the newly merged company that were valued at about $24.50 each, near the trading price of United Cable shares at the time. (The companies suspended the merger plan after the Oct. 19 stock market crash and resumed talks in mid-January on different terms.)

Benefits Both Stocks

Frederick Moran, a money manager in Greenwich, Conn., vehemently opposed the earlier merger plan because he believes that United Cable shares are actually worth between $40 and $42. “Tele-Communications was not paying any premium to gain control,” Moran said. With Wednesday’s offer, “at least we got halfway to the goal.”

Moran, like a number of other professional investors, also holds shares of United Artists Communications and Tele-Communications and admits he cannot turn a blind eye to the benefits of the merger. The deal is “adding value to both of the stocks, which have demonstrated that by going up,” he said.

United Cable stock closed Wednesday at $32.625 a share, up $2.875, on the New York Stock Exchange, while United Artists Communications closed at $29.75 a share, up $2.25, in over-the-counter trading. Tele-Communications closed at $26.50, up 62.5 cents, on heavy OTC trading volume of more than 1.22 million shares.

Interestingly, United Cable’s stock has gained about 33% in value since the initial deal was proposed on Oct. 16. The stock closed at $24.50 that day--caught in a plunging market that culminated in “Black Monday” on Oct. 19.

“Here is an example of a stock that crashed, but the values did not collapse,” declared Mario Gabelli, a money manager in New York who also owns shares in each of the three companies.

Gabelli said he still has questions about the mechanics of the “put,” and he noted that, under the new terms, Tele-Communications will receive 2 million shares “for acting as an investment banker; they probably get more than they should.” Nevertheless, he also found the deal satisfactory, particularly when viewed from the stance of United Artists Communications, where he holds his largest investment.

Innovative Merger

Paul Kagan, publisher of a number of cable industry newsletters and an investor in both stocks, termed the deal “reasonable,” in contrast to the earlier offer. The first proposal, he said, was “no way to say goodby to your United (Cable) shares.”

In Kagan’s view, Wednesday’s proposal is “the most innovative merger we’ve seen yet, because of that piece of paper that protects your downside. You know you can get out at something approximating private value.”

In addition to its cable holdings, United Artists Communications is the nation’s largest movie theater operator. The company has been acquiring smaller circuits and building new theaters at an extraordinary clip in the past year, since a controlling block of stock was acquired by Tele-Communications. Founded in 1926 as United Artists Theatre Circuit, the company is not related to United Artists Corp., the Beverly Hills-based motion picture production and distribution company controlled by financier Kirk Kerkorian.

Under the terms announced Wednesday, the merged businesses will be reorganized as subsidiaries of a new company to be called United Artists Entertainment Co. The 2,050-screen theater chain will continue to use the United Artists name, while the cable operation will operate under the United Cable name, serving nearly 2.3 million subscribers if United Artists completes its pending acquisition of systems owned by Daniels & Associates, another Denver-based firm. (Daniels serves about 381,000 subscribers.)

United Cable’s top managers will play a key role in the new company. The companies said United Cable Chairman Gene W. Schneider will become chairman of the new entity, while United Artists President and Chief Executive Stewart D. Blair will serve as chief executive and vice chairman.

Tele-Communications currently owns about 65.5% of United Artists and 23.7% of United Cable. All three firms are headquartered in the Denver area.

United Cable, which serves about 1.2 million subscribers, holds several cable-TV franchises in Southern California, including a large system serving the eastern San Fernando Valley.

RECENT CABLE COMBINATIONS

Major completed cable company mergers of 1987 and 1988. Dollar figures in millions. Source: IDD Information Services.

Year Target Acquirer $ Value 1987 Viacom International National Amusements 3,900 1987 Heritage Communications Acquisition Group 879 1988 American Cablesystems Continental Cablevision 482 1987 Adams-Russell Cablevision Systems 474 1987 Rainbow-9 Cable TV Cablevision Systems 338 1988 Scott Cable Acquisition Group 240 1987 Western Union Investor Group 230 1987 Lorain & MultiChannel Adelphia Communications 222 1987 Chappel & Co. Warner Communications 200 1987 Manhattan Cable TV American TV & Comm. 175 1987 James Communications First Carolina Communications 170 1987 ITT World Communications Western Union 141