2nd UPDATE: Foxtel Bids A$1.52/Share For Austar, Values Target Around A$1.92 Billion

Australian metropolitan pay-television operator Foxtel has made a 1.92 billion Australian dollar takeover offer for regional pay-television company Austar United Communications Ltd. (AUN.AU) in a deal that will come under scrutiny by Australia's competition watchdog.

Foxtel, which is 50%-owned by telecommunications giant Telstra Corp. (TLS.AU) and 25% each by News Corp. (NWS) and Consolidated Media Holdings Ltd. (CMJ.AU), said in a statement Thursday it had offered to buy Austar for A$1.52-a-share.

The takeover proposal comes amid a spate of takeovers and consolidation in Australia's media sector, which has been hit by sluggish consumer confidence in a so-called "patchwork" economy dominated by the booming mining industry.

A spokesman for the Australian Competition and Consumer Commission (ACCC) said it would review Foxtel's takeover offer for Austar, with the ACCC calling for comment on the transaction.

Foxtel Chief Executive Kim Williams said he was confident the proposal would meet Australian laws dealing with reductions in competition, pointing out that Foxtel and Austar only compete directly in one geographic area, representing 2% of the pay-television market.

"I struggle to see how it may have any regulatory difficulties," he told Dow Jones Newswires in an interview.

Austar said in a statement its board, which includes representatives of its largest shareholder, U.S. cable company Liberty Global Inc. (LBTYA), believes the value ascribed to Austar was "appropriate in the context of a change of control transaction."

Liberty Global, which owns 54.2% of Austar, will receive gross proceeds of A$1 billion for its Austar shares if the takeover goes ahead, it said in a statement.

Williams said he expected a merger of the two companies to create annual cost savings of A$55 million-A$60 million. The takeover would be funded by bank debt and shareholder capital contributions, he said.

An Austar shareholder, who declined to be identified, said it was "encouraging" that an offer for Austar had been made after months of speculation.

The shareholder said the price offered was "reasonable" but would reserve a decision on the sale, noting "there's a lot of work to be done before a finalized offer can be put together".

Austar said Thursday that no assurance could be given that the takeover proposal would lead to a "definitive transaction," given its conditional nature.

It said the non-binding proposal is subject to conditions including due diligence, financing and final board approvals.

If a deal is ultimately agreed, a scheme of arrangement would be subject to further conditions such as minority shareholder and court approval, Australian Competition and Consumer Commission and Foreign Investment Review Board approval, and the determination of an independent expert that the transaction is in the best interest of Austar shareholders.

The deal "makes sense" for Austar's and Foxtel's shareholders given it would create strong synergies and provides Telstra with access to Austar's regional footprint, Southern Cross Equities media analyst Daniel Blair said in a note.

The takeover proposal comes on the heels of a spate of media deals in Australia, including West Australian Newspapers' A$4.1 billion merger with Seven Media Group to create Seven West Media Ltd. (SWM.AU) and Southern Cross Media Group Ltd.'s (SXL.AU) A$741 million takeover of radio broadcaster Austereo Group Ltd.

Austar's shares closed Thursday up 7.9% at A$1.365.

-By Gavin Lower, Dow Jones Newswires; +61-3-9292-2095; gavin.lower@dowjones.com

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