EX-99.3 5 b327400_ex99-3.htm PRESENTATION OF MORGAN JOSEPH AND CO. Prepared and Filed by St Ives Burrups
   
    September 30, 2003
 

Presentation to the Special Committee of the
Board of Directors of

NTL Europe, Inc.
 
 
 
 
 
 
 
 
    Confidential
   

Disclaimer

   
• The following materials (the “Presentation”) were prepared for the exclusive use of the Special Committee of the Board of Directors of NTL Europe, Inc. (the “Company”) which has requested that Morgan Joseph & Co. Inc. (“Morgan Joseph”) provide its opinion as to the fairness, from a financial point of view, to holders of the Company’s common stock of the consideration to be received for any fractional shares in a reverse stock split (the “Proposed Transaction”). No person other than the Board of Directors of the Company or its Special Committee are entitled to rely on the information and conclusions provided in this presentation.
   
• In arriving at our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information used by us and have not attempted independently to verify such information, nor do we assume any responsibility to do so. We have assumed that the Company’s financial projections and estimates provided to or reviewed by us, have been reasonably prepared based on the best current estimates and judgment of the management of the Company as to the future financial condition and results of operations of the Company. We have not assessed the merits of the Proposed Transaction, nor have we solicited alternatives to the Proposed Transaction. We have also taken into account our assessment of general economic, market and financial conditions and our experience in similar transactions, as well as our experience in securities valuation in general. We have not made an independent investigation of any legal, accounting or tax matters affecting the Company, and have assumed the correctness of all legal, accounting and tax advice given the Company and its Board of Directors or any committee thereof. Our opinion is necessarily based upon standards of assessment, economic, market, financial and other conditions as they exist and can be evaluated on the date hereof and we assume no responsibility to update or revise our opinion based upon events or circumstances occurring after the date hereof.
   
• These materials do not address the Company’s underlying business decision to approve the Proposed Transaction. These materials may not be reproduced, summarized, excerpted from or otherwise publicly referred to or disclosed in any manner without our prior written consent unless otherwise required pursuant to SEC obligations.
   
• The following materials are based upon Morgan Joseph’s analysis of the Proposed Transaction as described in a draft of the Proxy Statement dated September 29, 2003. In the event of material changes to this document which are not reflected in these materials, the enclosed analysis and our conclusions may be affected.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   2 \

Table of Contents

   
I. Introduction
II. Summary of Proposed Transaction
III. Overview of NTL Europe
  A. History of NTL Europe
  B. Summary Financials
  C. Projected Cash Flows
  D. Capital Structure
  E. Historical Stock Prices & Trading Volume
IV. Valuation Analysis
     
Appendices
  A. Form of Fairness Opinion Letter
  B. Description of Subsidiaries
  C. “Going Private” Cost Savings
     
         Nashville New York Rochester
150 4th Avenue North, Suite 1050 600 Fifth Avenue, 19th Floor 1173 Pittsford Victor Rd
   Nashville, TN 37219 New York, NY 10020 Pittsford, NY 14534
      Tel. (615) 238-2300 Tel. (212) 218-3700 Tel. (585) 899-6022

www.morganjoseph.com

\ Morgan Joseph & Co. Inc.  \   NTL Europe   3 \
I.   /   Introduction

 

 

 

 

 

 

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   4 \

Introduction

   
   
NTL Europe, Inc. (“NTL Europe” or the “Company”) was formed on January 10, 2003 pursuant to a plan of reorganization of NTL Incorporated (“Old NTL”) into NTL Europe and NTL Communications Corp. (“New NTL”).
     
  – The Company consists of certain of Old NTL’s businesses and investments.
  – The Company’s common stock trades on the Pink Sheets under the symbol NTEU.PK.
   
We understand that the Board of Directors of NTL Europe is considering a reverse stock split of the Company’s outstanding common stock (“Reverse Stock Split”).
     
  – The ratio for the Reverse Stock Split is 1-for-50,000.
  – Fractional shares will be purchased from holders at a rate of $0.01 of cash for each share of existing common stock on a pre-split basis.
  – The Reverse Stock Split is expected to reduce the number of shareholders of record to less than 300, thereby allowing the Company to terminate its registration under the Securities Exchange Act of 1934. As such, the Reverse Stock Split will be deemed to be a going-private transaction.
  – The principal reason for “going private” is to relieve the Company of the expense of remaining a public-reporting company.
   
Morgan Joseph & Co. Inc. (“Morgan Joseph”) has been retained by the Special Committee of the Board of Directors (the “Special Committee”) to provide its opinion as to the fairness, from a financial point of view, of the consideration to be received by the Company’s shareholders for any fractional shares pursuant to the Reverse Stock Split.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   5 \

Introduction

   
As disclosed in an engagement letter between the Special Committee and Morgan Joseph dated July 1, 2003, Sean Mathis, a director of the Company, is also affiliated with Morgan Joseph. However, under the terms of Morgan Joseph’s engagement, Mr. Mathis has not participated in the discussions between the Special Committee and Morgan Joseph regarding the Special Committee’s engagement of Morgan Joseph or in Morgan Joseph’s engagement pursuant to such agreement.

 

 

 

 

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II.   /   Summary of Proposed Transaction

 

 

 

 

 

 

 

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Proposed Transaction

   
The terms of the Reverse Stock Split that we understand the Board of Directors will consider are summarized below:
       
       
  Stock Split Ratio   1-for-50,000.
       
       
  Payment for Fractional Shares   $0.01 in cash per share of existing common stock on a pre-split basis (without deduction of brokerage or other fees).
       
       
  Vote Required   The Reverse Stock Split is subject to approval by a majority of the holders of the Company’s common stock as well as a certain waiver by a majority of the holders of the 10% Fixed Redeemable Preferred Stock (the “Preferred Stock”).
       
       
  Miscellaneous   The number of record holders of the Company’s common stock is expected to be reduced to less than 300 as a result of the Reverse Stock Split. As such, the Reverse Stock Split will relieve the Company of its principal public reporting requirements and will be considered to be a going-private transaction.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   8 \
III   /   Overview of NTL Europe, Inc.

 

 

 

 

 

 

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   9 \

A. History of NTL Europe

Timeline     Event
       
Dec ’98 Old NTL, with a diverse base of cable and internet assets, is incorporated under the laws of the State of Delaware.
     
May ’02 Old NTL and certain of its subsidiaries file a voluntary petition for a prearranged joint plan of reorganization under Chapter 11 to convert $10.6 billion of debt into the equity of two separate companies. 
     
Jan ’03 The reorganization plan becomes effective. Pursuant to the reorganization plan, Old NTL is reorganized into two separate companies: 
    – NTL Europe, encompassing certain of Old NTL’s businesses & investments; and
    – New NTL, encompassing Old NTL’s businesses & operations in the UK & Ireland.
     
Jan ’03  NTL Europe engages Quest Turnaround Advisors, LLC (“Quest”) to restructure and review all of the Company’s holdings to determine the most appropriate course of action.
     
June ‘03 The Board of NTL Europe forms a Special Committee to evaluate a possible going-private transaction. The Special Committee hires Morgan Joseph and also retains legal counsel.
     
Sept ’03 The Special Committee engages Morgan Joseph to provide it with a fairness opinion related to the proposed Reverse Stock Split.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   10 \

B. Summary Financials
Overview

The Company adopted fresh-start reporting upon its emergence from Chapter 11 reorganization in accordance with SOP 90-7.
   
Pursuant to fresh-start reporting, a new entity was deemed created for financial reporting purposes and the carrying value of assets & liabilities was adjusted.
     
  –   The carrying value of the assets was adjusted to their reorganization value, or the estimated fair value of the assets;
  –   The carrying value of the liabilities was adjusted to their present value.
   
To reflect the likelihood that the Company will not retain a significant interest in Cablecom and that Cablecom will no longer be reported as part of the Company’s consolidated results of operations, the balance sheet and income statements, from the 10-Q for the quarter ended 6/30/03, are also presented pro forma for Cablecom as a discontinued operation. 
   
On September 11, 2003, the Company’s Board of Directors approved a semi-annual dividend of $2.50 per share on the Preferred Stock.
     
  –   Hence, based on 6,864,000 shares of preferred stock outstanding, the aggregate dividend will be approximately $17.2MM.
  –   The pro forma for dividend column reflects the balance sheet giving effect to a payable of $17.2 million and the corresponding adjustment to the book value of the preferred stock.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   11 \

Summary Financials
Balance Sheet

    June 30, 2003 (a)   Pro Forma for Cablecom as Discontinued Operations (a)   Pro Forma for Dividends Payable  
   
 
 
 
(dollars in millions)     (Consolidated)              
                     
Assets                    
Current assets:                    
   Cash and cash equivalents   $ 148.1   $ 67.2   $ 67.2  
   Accounts receivable-trade, net     73.6     18.1     18.1  
   Other     74.5     13.3     13.3  
   Discontinued operations     -     1,920.3     1,920.3  
   
 
 
 
Total current assets     296.2     2,018.9     2,018.9  
Fixed assets, net     1,157.3     3.2     3.2  
Goodwill     -     -     -  
Reorganization value in excess of amounts allocable to identifiable assets     221.5     1.2     1.2  
Customer lists, net of accumulated amortization of $5.6     208.9     -     -  
Investments in and loans to affiliates, net     21.0     13.1     13.1  
Deferred tax asset     91.8     (40.2 )   (40.2 )
Other assets     19.3     19.8     19.8  
   
 
 
 
Total assets   $ 2,016.0   $ 2,016.0   $ 2,016.0  
   
 
 
 
Liabilities and shareholders’ (deficiency)                    
Liabilities not subject to compromise                    
Current liabilities:                    
Accounts payable
   $ 32.7   $ 9.2   $ 9.2  
Accrued expenses and other
     68.5     32.3     32.3  
Interest payable
     9.6     -     -  
Deferred revenue
     145.9     2.5     2.5  
Current portion of long-term debt
     2,809.6     0.3     0.3  
Discontinued operations
     -     1,920.3     1,920.3  
   
 
 
 
Total current liabilities     3,066.3     1,964.6     1,964.6  
Long-term debt     -     -     -  
Other     132.3     -     -  
Deferred income taxes     135.3     (40.3 )   (40.3 )
Commitments and contingent liabilities                    
                     
Mandatorily redeemable preferred stock     114.7     114.7     97.5  
Preferred stock dividend payable     -     -     17.2  
Shareholders’ (deficiency)                    
Common stock - $.01 par value; authorized 20.0 shares; issued and outstanding 19.7 shares
     0.2     0.2     0.2  
Additional paid-in capital
     -     -     -  
Accumulated other comprehensive (loss)
     3.7     0.2     0.2  
(Deficit)
     (1,436.5 )   (23.4 )   (23.4 )
   
 
 
 
      (1,432.6 )   (23.0 )   (23.0 )
   
 
 
 
Total liabilities and shareholders’ equity (deficiency)   $ 2,016.0   $ 2,016.0   $ 2,016.0  
   
 
 
 
                     
Memo: Total Assets - Total Liabilities     (1,317.9 )   91.7     74.5  
                     
Note:                    
                   
(a) Source: NTL Europe’s 10Q for the six months ended June 30, 2003                  
\ Morgan Joseph & Co. Inc.  \   NTL Europe   12 \

Summary Financials
Income Statement

          Pro Forma for  
      Six months ended   Cablecom as Discontinued  
      June 30, 2003 (a)   Operations (a)  
     
 
 
(dollars in millions, except per share amounts)              
                 
                 
Revenues     $ 242.3   $ 13.1  
                 
Costs and expenses              
Operating expenses (exclusive of depreciation shown              
separately below)     90.9     9.1  
Selling, general and administrative expenses     69.8     5.5  
Other Charges     3.6     -  
Corporate expenses     9.2     9.2  
Depreciation       92.4     3.0  
Amortization       5.5     -  
     
 
 
        271.4     26.8  
     
 
 
Operating (loss)     (29.1 )   (13.7 )
Other income (expense)              
Interest income and other, net     2.0     0.1  
Interest expense     (1,398.4 )   -  
Share of (losses) from equity investments     (1.7 )   (1.7 )
Foreign currency transaction gains (losses)     0.6     0.6  
   
 
 
(Loss) before recapitalization items, income taxes and              
discontinued operations     (1,426.6 )   (14.7 )
Recapitalization items, net     -     -  
   
 
 
                 
(Loss) before income taxes and discontinued operations     (1,426.6 )   (14.7 )
Income tax benefit (expense)     (1.3 )   (0.1 )
   
 
 
(Loss) from continuing operations     (1,427.9 )   (14.8 )
Discontinued operations:              
(Loss) from discontinued operations, net of income tax              
   benefit of $0.7       -     (1,413.1 )
     
 
 
Net (loss)       (1,427.9 )   (1,427.9 )
Preferred stock dividends and accretion     (8.6 )   (8.6 )
   
 
 
Net (loss) available to common shareholders   $ (1,436.5 ) $ (1,436.5 )
   
 
 
                 
Note:                
               
(a) Source: NTL Europe’s 10Q for the six months ended June 30, 2003              
\ Morgan Joseph & Co. Inc.  \   NTL Europe   13 \

C. Projected Cash Flows
Management’s Projection of Cash Flows

The following is NTL Europe management’s estimate of the Company’s expected cash flows during the period of June 30, 2003 to December 31, 2006
At no point during this period do the cash balances of NTL Europe represent more than 20% of the liquidation preference of its preferred stock as of June 30, 2003.
                                   
($ millions)   6 MONTHS ENDED
12/31/03		                            
          12 MONTHS ENDED DECEMBER 31,        
       
       
DESCRIPTION
         2004     2005     2006     TOTAL  
 
   
 
 
 
 
Beginning Cash     $57.3 (a)   $ 67.4   $ 64.1   $ 63.3   $ 57.3  
                                   
NTL EUROPE FLOWS                                  
LONDON OFFICE TOTAL     (0.5 )     (0.7 )   (0.2 )   (0.0 )   (1.3 )
NEW YORK OFFICE TOTAL     (7.7 )     (2.3 )   (0.6 )   (0.2 )   (10.9 )
PAYMENT TO FORMER OFFICERS     (2.1 )     (0.3 )   —     —     (2.4 )
LANBASE     —       —     —     —     —  
NTL INSURANCE     0.1       —     —     —     0.1  
   
   
 
 
 
 
TOTAL INC     (10.2 )     (3.3 )   (0.8 )   (0.3 )   (14.6 )
                                   
PARC HOLDINGS FLOWS                                  
CABLECOM     15.0                         15.0  
PTV     (1.2 )     —     —     —     (1.2 )
NTL ASIA     —       —     —     —     —  
AUSTRALIA PROCEEDS     6.5       —     —     —     6.5  
   
   
 
 
 
 
TOTAL DELAWARE     20.3       —     —     —     20.3  
   
   
 
 
 
 
TOTAL OF DISBURSEMENTS     10.1       (3.3 )   (0.8 )   (0.3 )   5.7  
   
   
 
 
 
 
ENDING CASH   $ 67.4     $ 64.1   $ 63.3   $ 63.0   $ 63.0  
   
   
 
 
 
 
Note:                                  
(a) Does not include approximately $10MM of cash held at various operating subsidiaries.

\ Morgan Joseph & Co. Inc.  \   NTL Europe   14 \

D. Capital Structure

Common Stock  
     
  Shares Outstanding 19,657,769 shares (as of 6-30-03)
     
  Par Value $0.01 per share
     
  Dividends None paid since the formation of the Company in Jan. 2003
     
  Number of Record Holders In excess of 300
     
  Major Holders Affiliates of Angelo Gordon and Appaloosa Management each own in excess of 10% of the Company’s outstanding common shares.
     
  Pro-Forma Book Value $(23.0) MM (equivalent to $(1.17) per share) as of June30, 2003, on a pro-forma basis to account for Cablecom as a discontinued operation
     
10% Fixed Redeemable Preferred Stock 
     
  Shares Outstanding 6,864,000 shares (as of June 30, 2003)
     
  Dividends Semi-annual dividend of $2.50 per share declared on Sept. 11
     
  Liquidation Preference $50 per share, equivalent to approximately $360 MM as of June 30, 2003, including approximately $17 MM of unpaid dividends as of such date
   
   
\ Morgan Joseph & Co. Inc.  \   NTL Europe   15 \

E. Historical Stock Prices & Trading Volume

Common Stock

The closing stock prices and daily trading volume for the Company’s common stock for the period from January 13, 2003 (the first day of trading) until September 26, 2003, are shown on the following page:
   
The stock price history for the common stock is summarized below:
   
  Closing Price - Sept. 26, 2003 $0.02 per share
  Average Closing Price for
60 Trading Days Ended Sept. 26, 2003		 $0.03 per share
  All Time High (1-13-03) $0.65 per share
  All Time Low (7-30-03) $0.01 per share
     
The trading volume history for the common stock is summarized below:
   
  Average Daily Trading Volume for the 60 Trading Days Ended Sept. 26, 2003  
  - Number of Shares 33,000 shares / day
  - As a % of Total Shares Outstanding 0.17%
   
  Summary of Number of Shares Traded per Day
  # of Shares # of Trading Days
Since Jan. 13, 2003		   # of Trading Days
Last 60 Trading Days		  
     0 41   24  
     1 -10,000 58   14  
  10,001 -25,000 26     7  
  25,001 -50,000 19     4  
  50,001 -100,000 16     6  
  More than 100,000 20     5  
 
\ Morgan Joseph & Co. Inc.  \   NTL Europe   16 \

Historical Stock Prices & Trading Volume
Common Stock

NTL Europe Closing Stock Prices & Volume
                                             
NTEU Equity                      
Date   Px Last   Px Volume   Date   Px Last   Px Volume   Date   Px Last   Px Volume   Date   Px Last   Px Volume
01/13/03   0.650   5,000   03/19/03   0.045   1,400   05/22/03   0.055   300   07/28/03   0.010   2,900
01/14/03   0.650   200   03/20/03   -   -   05/23/03   0.050   164,700   07/29/03   -   -
01/15/03   0.550   513,600   03/21/03   0.045   23,800   05/27/03   0.050   51,100   07/30/03   0.010   200
01/16/03   0.550   175,500   03/24/03   0.045   6,700   05/28/03   0.045   69,100   07/31/03   0.050   3,600
01/17/03   0.450   134,800   03/25/03   0.050   16,000   05/29/03   -   -   08/01/03   -   -
01/21/03   0.340   184,900   03/26/03   0.050   38,700   05/30/03   0.010   1,000   08/04/03   -   -
01/22/03   0.260   78,600   03/27/03   0.055   10,500   06/02/03   -   -   08/05/03   0.040   80,000
01/23/03   0.200   158,800   03/28/03   0.040   164,000   06/03/03   0.020   25,300   08/06/03   0.030   10,000
01/24/03   0.200   178,200   03/31/03   0.055   7,500   06/04/03   0.050   35,400   08/07/03   0.030   21,800
01/27/03   0.140   154,200   04/01/03   -   -   06/05/03   0.050   8,500   08/08/03   0.030   90,000
01/28/03   0.170   22,200   04/02/03   0.060   9,300   06/06/03   0.030   25,000   08/11/03   -   -
01/29/03   0.200   60,100   04/03/03   0.045   2,500   06/09/03   0.045   41,800   08/12/03   -   -
01/30/03   0.180   91,000   04/04/03   0.060   3,500   06/10/03   0.050   3,000   08/13/03   0.020   500
01/31/03   0.165   91,600   04/07/03   0.050   22,500   06/11/03   -   -   08/14/03   -   -
02/03/03   0.170   18,200   04/08/03   -   -   06/12/03   0.055   10,000   08/15/03   -   -
02/04/03   0.155   25,900   04/09/03   0.045   300   06/13/03   -   -   08/18/03   0.020   2,700
02/05/03   0.115   100,700   04/10/03   0.045   300   06/16/03   0.020   600   08/19/03   -   -
02/06/03   0.066   3,124,800   04/11/03   -   -   06/17/03   0.055   400   08/20/03   0.040   32,300
02/07/03   0.080   51,800   04/14/03   0.045   3,000   06/18/03   0.020   36,700   08/21/03   -   -
02/10/03   0.070   17,600   04/15/03   0.045   5,000   06/19/03   -   -   08/22/03   0.040   15,800
02/11/03   0.070   44,500   04/16/03   0.045   100   06/20/03   0.050   5,000   08/25/03   -   -
02/12/03   0.070   16,900   04/17/03   -   -   06/23/03   0.050   16,000   08/26/03   0.040   500
02/13/03   0.070   2,000   04/21/03   0.045   100   06/24/03   0.010   100   08/27/03   -   -
02/14/03   0.070   5,300   04/22/03   0.045   7,900   06/25/03   0.010   30,500   08/28/03   -   -
02/18/03   0.070   2,700   04/23/03   0.055   5,200   06/26/03   -   -   08/29/03   0.040   100,000
02/19/03   -   -   04/24/03   0.055   2,800   06/27/03   0.010   6,000   09/02/03   0.040   600
02/20/03   0.075   107,500   04/25/03   0.060   12,500   06/30/03   0.010   1,800   09/03/03   -   -
02/21/03   0.080   25,600   04/28/03   0.055   39,000   07/01/03   -   -   09/04/03   -   -
02/24/03   0.075   20,900   04/29/03   0.060   10,900   07/02/03   0.010   8,700   09/05/03   -   -
02/25/03   0.075   9,300   04/30/03   0.060   344,400   07/03/03   -   -   09/08/03   0.030   11,200
02/26/03   -   -   05/01/03   0.055   50,900   07/07/03   -   -   09/09/03   0.020   400
02/27/03   -   -   05/02/03   0.060   300   07/08/03   -   -   09/10/03   -   -
02/28/03   0.075   15,200   05/05/03   0.060   15,600   07/09/03   0.010   140,400   09/11/03   -   -
03/03/03   0.073   200   05/06/03   0.060   13,500   07/10/03   0.010   5,900   09/12/03   -   -
03/04/03   0.073   2,200   05/07/03   0.060   3,500   07/11/03   0.010   10,000   09/15/03   0.040   50,200
03/05/03   0.073   900   05/08/03   -   -   07/14/03   -   -   09/16/03   0.020   157,600
03/06/03   0.075   27,900   05/09/03   0.050   800   07/15/03   0.050   20,000   09/17/03   0.030   500,500
03/07/03   0.073   10,100   05/12/03   0.050   9,200   07/16/03   0.010   25,200   09/18/03   0.030   84,800
03/10/03   0.070   463,900   05/13/03   0.060   37,000   07/17/03   0.050   34,000   09/19/03   0.035   57,900
03/11/03   0.072   25,400   05/14/03   0.060   5,200   07/18/03   0.040   187,000   09/22/03   0.040   216,200
03/12/03   0.065   86,200   05/15/03   0.060   600   07/21/03   0.050   12,500   09/23/03   0.040   22,300
03/13/03   0.045   303,300   05/16/03   0.050   400   07/22/03   0.050   24,000   09/24/03   0.040   10,000
03/14/03   0.056   15,000   05/19/03   0.060   43,500   07/23/03   -   -   09/25/03   0.020   10,000
03/17/03   0.050   51,500   05/20/03   0.060   32,700   07/24/03   -   -   09/26/03   0.020   800
03/18/03   0.050   18,400   05/21/03   0.060   7,500   07/25/03   0.050   29,500            
                                             
\ Morgan Joseph & Co. Inc.  \   NTL Europe   17 \

Historical Stock Prices & Trading Volume
Preferred Stock

NTEU Pfd                      
Date   Px Last   Px Volume   Date   Px Last   Px Volume   Date   Px Last   Px Volume   Date   Px Last   Px Volume
01/13/03   -   -   03/19/03   -   -   05/22/03   -   -   07/28/03   3.10   500
01/14/03   -   -   03/20/03   -   -   05/23/03   -   -   07/29/03   -   -
01/15/03   -   -   03/21/03   -   -   05/27/03   -   -   07/30/03   -   -
01/16/03   -   -   03/24/03   3.55   3,700   05/28/03   -   -   07/31/03   3.50   1,000
01/17/03   -   -   03/25/03   -   -   05/29/03   -   -   08/01/03   -   -
01/21/03   3.50   50,000   03/26/03   3.50   47,800   05/30/03   -   -   08/04/03   -   -
01/22/03   2.00   6,100   03/27/03   3.50   4,500   06/02/03   -   -   08/05/03   -   -
01/23/03   3.50   5,000   03/28/03   3.25   600   06/03/03   -   -   08/06/03   3.10   111,200
01/24/03   -   -   03/31/03   -   -   06/04/03   -   -   08/07/03   -   -
01/27/03   2.25   38,600   04/01/03   -   -   06/05/03   -   -   08/08/03   -   -
01/28/03   2.97   113,700   04/02/03   -   -   06/06/03   -   -   08/11/03   -   -
01/29/03   -   -   04/03/03   -   -   06/09/03   3.00   500   08/12/03   -   -
01/30/03   2.82   305,400   04/04/03   -   -   06/10/03   3.10   200   08/13/03   3.10   100
01/31/03   3.20   818,100   04/07/03   -   -   06/11/03   -   -   08/14/03   -   -
02/03/03   -   -   04/08/03   -   -   06/12/03   -   -   08/15/03   -   -
02/04/03   3.25   4,600   04/09/03   -   -   06/13/03   3.10   8,100   08/18/03   3.10   1,100
02/05/03   3.50   45,200   04/10/03   -   -   06/16/03   3.10   200   08/19/03   -   -
02/06/03   -   -   04/11/03   -   -   06/17/03   -   -   08/20/03   -   -
02/07/03   -   -   04/14/03   -   -   06/18/03   5.00   100,000   08/21/03   -   -
02/10/03   3.35   1,000   04/15/03   -   -   06/19/03   -   -   08/22/03   -   -
02/11/03   -   -   04/16/03   -   -   06/20/03   -   -   08/25/03   -   -
02/12/03   3.35   3,200   04/17/03   3.35   1,400   06/23/03   3.10   100   08/26/03   -   -
02/13/03   -   -   04/21/03   3.35   1,600   06/24/03   -   -   08/27/03   -   -
02/14/03   -   -   04/22/03   -   -   06/25/03   -   -   08/28/03   -   -
02/18/03   3.50   300   04/23/03   3.35   1,200   06/26/03   2.00   100   08/29/03   3.15   9,800
02/19/03   -   -   04/24/03   3.30   700   06/27/03   -   -   09/02/03   3.55   2,500
02/20/03   -   -   04/25/03   3.25   1,100   06/30/03   -   -   09/03/03   4.00   1,000
02/21/03   -   -   04/28/03   3.25   2,000   07/01/03   -   -   09/04/03   -   -
02/24/03   3.50   800   04/29/03   -   -   07/02/03   -   -   09/05/03   -   -
02/25/03   -   -   04/30/03   3.10   200   07/03/03   -   -   09/08/03   -   -
02/26/03   4.00   20,000   05/01/03   3.10   800   07/07/03   -   -   09/09/03   3.50   200
02/27/03   3.55   500   05/02/03   -   -   07/08/03   -   -   09/10/03   -   -
02/28/03   -   -   05/05/03   -   -   07/09/03   -   -   09/11/03   -   -
03/03/03   3.50   900   05/06/03   -   -   07/10/03   -   -   09/12/03   4.38   25,000
03/04/03   3.50   900   05/07/03   -   -   07/11/03   -   -   09/15/03   6.10   15,200
03/05/03   3.50   400   05/08/03   -   -   07/14/03   -   -   09/16/03   5.35   1,000
03/06/03   -   -   05/09/03   -   -   07/15/03   -   -   09/17/03   5.30   300
03/07/03   -   -   05/12/03   -   -   07/16/03   -   -   09/18/03   5.30   1,800
03/10/03   3.62   353,100   05/13/03   -   -   07/17/03   3.00   100   09/19/03   6.10   207,400
03/11/03   -   -   05/14/03   -   -   07/18/03   -   -   09/22/03   -   -
03/12/03   3.62   13,000   05/15/03   3.10   1,000   07/21/03   -   -   09/23/03   -   1,400
03/13/03   -   -   05/16/03   -   -   07/22/03   -   -   09/24/03   5.75   100
03/14/03   -   -   05/19/03   -   -   07/23/03   -   -   09/25/03   6.00   9,300
03/17/03   -   -   05/20/03   -   -   07/24/03   3.10   1,900   09/26/03   3.00   160,300
03/18/03   -   -   05/21/03   -   -   07/25/03   -   -       -   -
                                             
\ Morgan Joseph & Co. Inc.  \   NTL Europe   18 \
IV   /   Valuation Analysis

 

 

 

 

 

 

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   19 \

Valuation Analysis
Overview

NTL Europe’s most significant holdings are currently being restructured and the Company is exploring strategic and financial alternatives available to the Company, including a possible liquidation or other sale of its remaining assets, in addition to the Reverse Stock Split going-private transaction.
   
To the extent that the Company receives cash proceeds from any asset sales, the Preferred Stock will be entitled to mandatory redemption in a like amount, subject to certain limited exceptions, until all Preferred Stock (having an aggregate liquidation preference of approximately $360MM as of June 30, 2003) has been redeemed.
   
Given the Company’s business plan and capital structure, we have concluded that certain valuation methodologies – i.e., a comparison of the proposed valuation of the Company’s common equity in comparison to other publicly-traded companies or other precedent M&A transactions – are not meaningful and need not be utilized in evaluating the fairness of the Reverse Stock Split.
   
The principal valuation methodologies employed by Morgan Joseph in evaluating the fairness of the consideration to be received by holders of the Company’s common stock for any fractional shares in the Reverse Stock Split include the following:
   
  –   A comparison of the amount by which the liquidation preference of the Preferred Stock exceeds the book value of the Company’s assets less liabilities (i.e., its net asset value) as of June 30, 2003, on a pro-forma basis to treat Cablecom on a discontinued operations basis.
(Note that the Company’s financial statements as of June 30, 2003, reflect the effect of the January 1, 2003 application of fresh-start accounting principles pursuant to which the carrying value of its assets were adjusted to an amount equal to their estimated fair value and the carrying value of its liabilities were adjusted to their present value).
     
\ Morgan Joseph & Co. Inc.  \   NTL Europe   20 \

Valuation Analysis
Overview

  –   In addition, Morgan Joseph performed its own calculation of the estimated value of the assets and liabilities of the Company resulting in an estimate of the Company’s net asset value in a range of $52.8 MM to $92.2 MM. Our estimated valuation was not prepared in accordance with applicable accounting standards and therefore cannot be directly compared to the Company’s pro-forma book value as of June 30, 2003, referred to above.
     
    We also compared the amount by which the liquidation preference of the Preferred Stock exceeds the Company's estimated net asset value as estimated by Morgan Joseph.
       
  –   A comparison of the market value of the Company’s Preferred Stock to its liquidation preference as a measure to determine the extent to which the financial markets expect that the liquidation preference will be satisfied in whole or in part.
     
  –   A calculation of the enterprise value of the Company which is implied by the equity valuation implied by the Reverse Stock Split, and a comparison of such implied enterprise value to the Company’s annualized operating results for the six months ended June 30, 2003.
     
  –   An analysis of the “call option value” of the common stock of the Company.
     
These analyses are summarized on the following pages.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   21 \

Valuation Analysis
Summary

NTL Europe, Inc.
Summary Valuation Analysis
($ in Millions Except Per Share Amounts)

  Valuation of Company's Total Assets less
Total Liabilities (Net Asset Value)		   $$   Amount by Which the
Liquidation Preference of the
Preferred Stock Exceeds the
Estimated Net Asset Value		   Percent Amount by Which the
Estimated Net Asset Value Would
Have to Increase in Value in Order
Order to Equal the Liquidation
Preference of the Preferred Stock
     - Pro-Forma Net Asset Value per 6-30-03 10Q   $91.7   $268.5   293%
     - Net Asset Valuation per Morgan Joseph Analysis:            
    Low   $52.8   $307.4   582%
    Mid-Point   $72.5   $287.7   397%
    High   $92.2   $268.0   291%
               
  Market Value of Preferred Stock as a Percent
of its Liquidation Preference		   6%        
  Cash Consideration to be Paid
for Fractional Shares		  
0.01		  
   
  Total Common Shares Outstanding 19.7  
   
 
  Total Implied Value of Common Equity $ 0.2  
           
        Assuming the Prefered Stock is Valued at  
           Liquidation
Value		    9-26-03
Market Value		   
  + Value of Preferred Stock     $ 360.2   $ 20.6  
  + Total Pro-Forma Long-Term Debt(a)       0.3   0.3  
  - Pro-Forma Cash (a)     ($ 67.2 ) ($ 67.2 )
       
 
 
  Total Implied Enterprise Value of Company     $ 293.5   ($ 46.1 )
       
 
 
                   
  Total Implied Enterprise Value of Company                
  as a Multiple of: $$              
   
             
  Pro-Forma Annualized Operating Income ($27.4)     nm     nm  
  for the Six Months Ended 6-30-2003(a)                
                   
  Pro-Forma Annualized Operating Cash Flow ($21.4)     nm     nm  
  for the Six Months Ended 6-30-2003(a)                
                   
NOTES:
(a) Pro-forma to account for Cablecom as a discontinued operation. Information as of June 30, 2003 unless stated otherwise.

\ Morgan Joseph & Co. Inc.  \   NTL Europe   22 \

Valuation Analysis
“Orderly Liquidation” Value Analysis – NTL Europe, Inc.

NTL Europe, Inc. Morgan Joseph valuation range is based on 6/30/03 financials or more recent information, wherever available.
Summary Valuation Analysis
(figures in thousands)		            
  Book
Value ($)
(as of 6-30-03)		 Morgan Joseph
Valuation Range		    
  Low - High   Comments
Holding Company Assets            
             
Financial Assets
            
Cash
 $57,269 $57,325 - $57,325   Valuation figure is the cash balance as of 6/30/03, plus the remaining $56,301 cash received in August for liquidation of NTL Insurance.
 ATX Note
 $0 $0 - $1,700   $17 mil general unsecured claim due in 2011. ATX Communications (formerly known as CoreCom Holdco, Inc) is in the process of restructuring.
Prepaid Insurance
 $629 $0 - $0   Prepaid D&O insurance and other insurance - no liquidation value.
Due from/to NTL, Inc. net
 $2,700 ($1,000) - $1,000   Amounts to be settled between NTL Europe and “New NTL” (NTL Inc).
             
Operating Entities - NAV
            
Parc Holdings, Inc. (excl. Cablecom)
 $32,608 $0 - $35,522   Book value of Parc Holdings excludes Cablecom. Morgan Joseph valuation includes potential sale value of Cablecom’s equity interests. See separate schedule for details.
NTL Insurance
 $55 $0 - $0   NTL Insurance is a captive insurance vehicle that NTL set up for effecting self-insurance of certain telecom equipment. The entity has been liquidated. $845K has been received and is reflected in the cash (the last portion of cash, $56,301, was received in August).
NTL LanBase
 $1,482 $0 - $0   Cabling company (VAR) that installs phonelines / networks in offices. Value reflects management’s expectation for sale of the business.
Two Way TV
 $1,327 $1,000 - $1,500   NTL Europe owns 38% of TWTV. In addition, £2.5 to £3 mil of debt is owed to NTL Europe.
Classic Sports (51.52% owned by NTL Europe)
 $879 $704 - $879   NTL Europe (Parent) owns 51.52% of Classic Sports; PTV owns the other 48.48%. Assuming Classic Sports at 80%-100% ofbook value.
             
Total Assets $96,949 $58,029 - $98,127    
             
             
Liabilities and Contingent Claims            
Accounts Payable
 $499 $499 - $499   Payroll taxes.
Accrued Expenses
 $3,222 $3,222 - $3,222   Accrued professional fee and other misc expenses - in addtion to the budgeted corporate expenses.
Taxes Payable
 $1,550 $1,550 - $1,550   Estimated income tax liability.
Potential Cablecom Litigation
   $0   $0   The directors & officers (D&O) of NTL could be sued by Cablecom’s creditors. Claims are extremely speculative. Resolution of Cablecom matter highly likely.
SAGEM Indemnity Payment
   $0 - $690   Claim by SAGEM against NTL France regarding a take or pay agreement for set top boxes. NTL Europe’s lawyers believe that the claim is without merit.
             
Total Liabilities
 $5,271 $5,271 - $5,961    
             
             
             
Estimated Net Asset Value $91,679 $52,758 - $92,166   * Valuation does not take into account the declared $2.50 Preferred Stock dividend to be paid out in October 2003. 
           
             
\ Morgan Joseph & Co. Inc.  \   NTL Europe   23 \

Valuation Analysis
“Orderly Liquidation” Value Analysis – Parc Holdings, Inc.

Parc Holdings, Inc. Morgan Joseph valuation range is based on 6/30/03 financials or more recent information, wherever available.
Summary Valuation Analysis
(figures in thousands)		            
  Book
Value ($)
(as of 6-30-03)		 Morgan Joseph
Valuation Range		    
  Low - High   Comments
Assets            
             
Financial Assets
            
Cash
 $0 $0 - $0    
Deferred pymt for Australian Towers sale
 $6,950 $7,489 - $7,489   $7.5 mil payment received on 10/02/03 from Macquairie Communications Infrastructure Holding Pty, Ltd. (Australia).
Suez Lyonnaise Telecom (NOOS) Note
 $5,000 $0 - $5,750   In connection with NTL’s sale of NTL France, part of Suez Lyonnaise's payment came in the form of a PIK 11/23/06 maturity €37.5 mil subordinated note. Interest on the deferred payment accrues quarterly at the 3-mth Euribor + 400bps and is capitalized annually into the balance due until the maturity date. As of 10/31/02, the note plus accrued interest totaled 39.5 mil. Note will be paid off at due date only if its senior debt needs/can be refinanced, which could eventually happen, but not anytime soon . (a)
B2 Put Option
 $350 $315 - $315   Put option to sell the remaining interest in B2 to B2 Partners, which was exercised in Q2 '03. Total proceeds of $375K. $175K was received in August, net of $60K of legal expenses. The remaining $140K is expected by the end of the year.
             
Principal Majority-Owned Subsidiaries - NAV
            
Premium TV Ltd. (UK)
 $20,365 $0 - $10,478   Excluding PTV’s contingent liabilities guaranteed by Parc Holdings. See below.
Cablecom
 ($1,407,972) $0 - $15,000   Apollo has an option to purchase Cablecom for $15 million. The consortium of banks have voted on 8/31 to extend the deal execution to 10/31, improving the chance that Apollo will exercise its option. Additional expenses of $1.2 million contingent fee to be paid to UBS and $225K to be paid to former CFO are already included in Corporate Expenses for NTL Europe.
NTL Asia
 $794 $0 - $0   Located in Malaysia and Thailand. Considering a sale of business. Reduced staff by 30 - 40%. Have enough cash there to continue to run for 1 to 1.5 years, and will do so in the hopes of finding a buyer.
ITN News Channel
 $150 $249 - $830   NTL Europe owns 35% of the venture.
             
Total Assets

($1,374,364)

 $8,033 - $39,842    
             
             
Liabilities and Contingent Claims            
Taxes Payable
 $1,000 $1,000 - $1,000   Estimated income tax liability.
Guarantee of PTV’s obligations under PTV’s JV agreement with the Rangers FC
 $0 $5,810 - $3,320   Funding agreement. Parc Holdings has an obligation to provide the Rangers JV with a total of £6 million in funding. £2.5 mil has already been paid. Parc Holdings may be liable for an additional shortfall of £3.5 mil. Assuming obligation to be between £2 mil and £3.5 mil.(b)
The Studio Channel
 $0 $6,972 - $0   Originally, Parc Holdings agreed to guarantee £4.2 mil in the event of termination. The JV was shut down in Dec '02. Universal Studios continued to operate until Jan/Feb. Shut down costs totaled to £4.8 mil. Estimate that liability could range from nothing to £4.2 mil. (b)
Morgan Stanley Senior Funding
 $0 $5,700 - $0   $11.4 MM claim for unpaid fees related to financing commitments, etc. on behalf of Old NTL (and certain of its operating subsidiaries), which Morgan Stanley is claiming to be obligations of Parc Holdings. Parc Holdings rejects such claims for a number of reasons. Claim pending before bankruptcy court.
             
Total Liabilities
 $1,000 $19,482 - $4,320    
             
Estimated Net Asset Value ($1,375,364) ($11,449) - $35,522    
 Net Asset Value
 (Excl. Cablecom)		 $32,608          
(a) Assumes US / Euro exchange rate of $1.15
(b) Assumes US / UK exchange rate of $1.66
\ Morgan Joseph & Co. Inc.  \   NTL Europe   24 \

Valuation Analysis
“Orderly Liquidation” Value Analysis – Premium TV Holdings

Premium TV Holdings, Inc. Morgan Joseph valuation range is based on 6/30/03 financials or more recent information, wherever available.
Summary Valuation Analysis
(figures in thousands)		              
  Book
Value (£)
(as of 6-30-03)		 Book
Value ($)(a)
(as of 6-30-03)		 Morgan Joseph
Valuation Range		    
  Low - High   Comments
Assets              
               
Total Current Assets
 £11,831  $19,640 $5,107  - $9,812    See separate schedule for details
               
Noncurrent Assets
              
Football League JV Escrow Acct
 £5,747 $9,540 $9,540 - $9,540   Cash of £5.75 mil held in escrow account. Cannot be upstreamed.
Equity in Football Club Joint Ventures
 £3,996 $6,634 $0 - $8,634   Morgan Joseph believes that the current fair market value of the equity in these ventures is highly speculative. The current book value represents the high end of potential value under aggressive growth assumptions. See separate schedule for details on a JV by JV basis.
Minority Investments in Football Clubs
 £1,738 $2,885 $1,972 - $2,429   See separate schedule for details.
Debt Owned by Joint Venture Companies
 £3,851 $6,393 $6,393 - $6,393   See separate schedule for details/questions.
Classic Sports (48.8% owned by Premium TV Holdings)
 £499 $828 $662   $828    Assuming Classic Sports at 80%-100% of book value.
Tangible Fixed Assets
 £1,756 $2,915 $0 - $292   Leasehold improvements, office furniture & equipment, internet fixed assets, and broadcast fixed assets. Assuming tangible fixed assets at 0%-10% of Book Value.
               
Total Noncurrent Assets
 £17,587 £29,195 $18,567 - $26,115    
               
Total Assets £29,418

$48,834

 $23,675 - $35,927    
               
Liabilities and Accruals              
Amounts Due to Eurosport:              
Due to Eurosport:
 £7,739 $12,847 $0 - $0   Assets as well as liabilities associated with Eurosport were wiped out by new contract where PTV will get 3 payments of £500K for consulting services.
Accrual ERC live rights fee
 £0 $0 $0 - $0   Eurosport(UK) residual claim to PTV backed by Classic Sports.
ERC Production Costs
 £157 $260 $260 - $260   Eurosport(UK) residual claim to PTV backed by Classic Sports.
Other creditors and accruals £6,634 $11,012 $11,012 - $11,012   Amounts due to various parties.
Intra-group receivable adjusted £1,578 $2,619 $0 - $0   Intra-group receivable owed by Classic Sports to PTV.
Subtotal - Amts Due to Creditors
 £16,107 $26,738 $11,272 - $11,272    
PAYE & NI
 £113 $188 $188 - $188   UK payroll taxes. Assumed at 100% of Book Value.
VAT payable (Taxes on Corp Income)
 £0 $0 $0 - $0   Assumed at 100% of Book Value.
Deferred revenue
 £930 $1,543 $0 - $0   Internet revenue deferred over 34 months from 12-31-00, released on a straight line basis (i.e., 34 equal amounts). As services paid for ends in 10/03, it is most likely that contract will be fulfilled. Further, this is an unsecured claim.
               
Contingent Liabilities
              
Football League JV Funding Corporation
   $0 $13,988 - $13,988   Amount listed includes segregated account of £7.43 mil and an additional £1mil, set aside to cover the shortfall as per the contract if the company decides to terminate in December OR to pay the incremental operating costs of websites for the rest of the year. The segregated cash cannot be brought up and will be gone if PTV shuts down, so management feels it makes sense to continue running the websites until the money runs out.
               
Total Liabilities
 £17,150 $28,470 $25,448 - $25,448    
               
Premium TV Holdings - Net Asset Value £12,268 $20,365 ($1,774) - $10,478    Excluding PTV’s contingent liabilities guaranteed by Parc Holdings. See previous page for details.
(a) Assumes US / UK exchange rate of $1.66

\ Morgan Joseph & Co. Inc.  \   NTL Europe   25 \

Valuation Analysis
“Orderly Liquidation” Value Analysis – Premium TV Holdings, Current Assets

Premium TV Holdings, Inc. Morgan Joseph valuation range is based on 6/30/03 financials or more recent information, wherever available.
Summary Valuation Analysis
(figures in thousands)		              
  Book
Value (£)
(as of 6-30-03)		 Book
Value ($)(a)
(as of 6-30-03)		 Morgan Joseph
Valuation Range		    
  Low - High   Comments
               
Current Assets
              
Cash - Unrestricted
 £1,358 $2,254 $2,254 - $2,254   Cash figure reported by third party valuation only includes cash in Premium TV Ltd., the main operating entity in PTV Holdings. The shell entity PTV Holdings contains little else but cash, and accounts for the cash difference between book value and the third party
VAT Recoverable
 £311 $516 $516 - $516   VAT recoverable from UK Customs & Excise.
ESO Receivable
 £6,851 $11,373 $1,590 - $2,067   Morgan Joseph valuation based on present value of the new contract, where PTV will receive 3 payments of £500K in exchange for consulting services. Old receivables and payables as well as any rights under the original Eurosport broadcast contract between PTV and Eurosports have been wiped out by this renegotiated agreement.
Accounts Receivable
 £2,422 $4,020 $0 - $4,020   Accounts receivable will not come in if PTV is shut down.
Media Rights
 £0 $0 $0 - $0   Value of exclusive contracts with Newcastle and Aston Villa. Media rights represent management’s estimated current year receivable from the Newcastle JV Co, through the subsidiary PTV Ventures.
Agency Rights
 £0 $0 $0 - $0   Value of exclusive contracts with Rangers and Leicester. Management assumes no proceeds for agency rights.
Prepayments
 £289 $480 $0 - $0   Cannot get back.
Note Receivable
 £500 $830 $664 - $830   NTL Europe has approached the holder of the Note to buy back the loan for some amount of money.
Football League Advances
 £100 $166 $83 - $125   Advances to the Football League that is recoverable from future revenue streams. Assumed at 50% to 75% of book value.
               
Total Current Assets
 £11,831 £19,640 $5,107 - $9,812    
(a) Assumes US / UK exchange rate of $1.66

\ Morgan Joseph & Co. Inc.  \   NTL Europe   26 \

Valuation Analysis
“Orderly Liquidation” Value Analysis – PTV JVs / Minority Investments

PTV JVs / Minority Investments Morgan Joseph valuation range is based on 6/30/03 financials or more recent information, wherever available.
Summary Valuation Analysis
(figures in thousands)		                
  Original
Stake		 Book
Value (£)
(as of 6-30-03)		 Book
Value ($)(a)
(as of 6-30-03)		 Morgan Joseph
Valuation Range		    
  Low - High   Comments
UK Football Clubs
                
Debt Owed PTV by Joint Ventures
                
Rangers FC (rangers.co.uk)
   £1,737 $2,884 $2,884 - $2,884    
Leicester City FC (lcfc.co.uk)
   £372 $618 $618 - $618    
Middlesbrough FC (mfc.co.uk)
   £697 $1,157 $1,157 - $1,157    
Newcastle Union FC (nufc.co.uk)
   £1,045 $1,735 $1,735 - $1,735    
FLPTV
   £0 $0 $0 - $0    
Subtotal - Debt Owed PTV by JVs
   £3,851   $6,693 - $6,693    
                 
Joint Venture Investments (Net Equity in JV’s)
               Morgan Joseph believes that the current fair market value of the equity in these ventures is highly speculative. The current book value represents the high end of potential value under aggressive growth assumptions.
Rangers FC
 50.0% £1,036 $1,720 $0 - $1,720    
Leicester City FC
 50.0% £294 $487 $0 - $487    
Middlesbrough FC
 50.0% £486 $807 $0 - $807    
Newcastle Union FC
 50.0% £2,158 $3,582 $0 - $3,582    
FLPTV
 50.0% £23 $38 $0 - $38    
Subtotal - Joine Venture Investments
   £11,831 $6,634 $0 - $6,634    
                 
Minority Equity Investments (Holdings in Clubs)
                
Rangers Media Investments Ltd
 15,000 preference shares £0 $0 $0 - $0   PTV owns £15 million of preference shares in Rangers Media Investment which, in turn, owns 50% of Ranger JV Co. which was formed to exploit certain on-line rights of Rangers FC.
Middlesbrough FC
 5.59% £638 $1,059 $1,059 - $1,059   Middlesbrough FC is a going-concern and has been valued by a third party based on a multiple of revenues in comparison to other publicly-traded football clubs in the UK.
Leicester City FC

9.99%

 £0 $0 $0 - $0   Leicester City is in administration and the shares held by PTV have been cancelled.
Aston Villa convertible loan
 9.99% £1,100 $1,826  $913 - $1,370   Aston Villa FC is publicly-traded. Morgan Joseph assumes 50%- 75% of third party valuation because of discount for lack of marketability.
Subtotal - Joint Venture Investments
   £1,738 $2,285 $1,972 - $2,429    
                 
(a) Assumes US / UK exchange rate of $1.66

\ Morgan Joseph & Co. Inc.  \   NTL Europe   27 \

Valuation Analysis
Call Option Value Analysis

 

Inputs Relating to the Underlying Asset      
Current Firm Value of NTL Europe (1)    $32,000,000  
       
Industry average variance in firm value      
Annualized standard deviation in of the asset   30.00%  
       
Expected dividend yield   0.00%  
(No cash outflow for the preferred dividend)      
       
Inputs Relating to the Option      
Cumulated face value of preferred stock   $552,404,930  
(includes accumulation of preferred dividend)      
Assumed duration of preferred stock (liquidation event)   5 years
       
General Inputs      
Riskless rate that corresponds to the option lifetime   3.14%  
       
Summary Inputs to the Black Scholes Model      
Stock Price $32,000,000   T.Bond rate 3.14%
Strike Price $552,404,930   Variance 0.090000  
Expiration   5  years Annualized dividend yield 0.00%
             
   d1 =   -3.67698339        
   N(d1) =   0.000118036        
             
   d2 =   -4.347803783        
   N(d2) =   6.88062E-06        
       
=> Value of common stock as a call option   $528  
Number of common shares outstanding   19,668,777  
     => Value per share   $0.000  
(1) Assuming the current asset value to be approximately the average of the mid point of Morgan Joseph valuation range and the sum of the market capitalizations of the Company's equity and preferred stock.
Sensitivity Analysis  
    Number of Years for “Preferred Liquidation”  
    1 2 3 4 5
Stddev of
Firm
Assets		 10.0% $0.000 $0.000 $0.000 $0.000 $0.000  
20.0% $0.000 $0.000 $0.000 $0.000 $0.000  
30.0% $0.000 $0.000 $0.000 $0.000 $0.000  
40.0% $0.000 $0.000 $0.000 $0.001 $0.002  
50.0% $0.000 $0.000 $0.002 $0.007 $0.016  

\ Morgan Joseph & Co. Inc.  \   NTL Europe   28 \

Valuation Analysis
Tax Attributes

We have been informed by NTL Europe’s tax counsel that the Company may recognize very significant capital losses on its 2003 tax return and that some or all of such capital losses may be available to be offset against any capital gains which NTL Europe may recognize in future years.
   
However, the Company’s financial projections indicate that it has little or no ability in the ordinary course of business to utilize such capital loss carryforwards for the following reasons:
   
  – NTL Europe does not currently have any significant capital assets with built-in gains (i.e., whose fair market values are in excess of their tax basis) that it could sell in order to generate capital gains and thereby utilize the capital loss carryforwards;
     
  – At the present time, there is no capital available to the Company to enable the Company to take advantage of the tax basis nor is it anticipated that there will be any capital available in the future to do so; and
     
  – Sections 351 and 384 of the Internal Revenue Code may prevent the Company from acquiring capital assets with built-in gains and then using its capital loss carryforwards to shelter the capital gains that would otherwise be incurred on the sale of such acquired assets.
     
Sec. 382 of the Internal Revenue Code limits the ability of companies to fully utilize loss carryforwards subsequent to certain defined ownership changes. As a general rule, the amount of loss carryforwards which a company can utilize in any one year following a defined ownership change is limited to an amount equal to the equity value of the company times the long-term bond rate.
   
  – If NTL Europe were to be sold to another company that was able to utilize its capital loss carryforwards, subject to the limitations of Sec. 382 of the Internal Revenue Code, the maximum theoretical value of NTL Europe’s capital loss carryforwards is estimated by Morgan Joseph to be less than $5MM, primarily due to the low value of NTL Europe's equity.
     
Based on the above considerations, we believe that no significant economic value should be attributed to NTL Europe’s capital loss carryforwards or other tax attributes.
   
\ Morgan Joseph & Co. Inc.  \   NTL Europe   29 \
     /   Appendices

 

 

 

 

 

 

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   30 \

A. Form of Fairness Opinion Letter

September 30, 2003

The Special Committee of the Board of Directors
NTL Europe, Inc.
37 Purchase Street
Rye, NY 10580

Gentleman:

We understand that NTL Europe, Inc. (the “Company”) has proposed a reverse stock split of its common stock, par value $0.01 per share (the “Common Stock”), pursuant to which each common stockholder will receive one share of new common stock for every 50,000 shares of Common Stock that they own plus cash in lieu of any fractional shares at a rate of $0.01 per share of Common Stock on a pre-split basis (the “Proposed Transaction”). The terms and conditions of the Proposed Transaction are set forth in more detail in a draft of the proxy statement dated September 29, 2003. The Proposed Transaction is subject to approval by the holders of the Company’s Common Stock, as well as a certain waiver by holders of the Company’s 10% Fixed Redeemable Preferred Stock, Series A (the “Preferred Stock”).

You have requested our opinion as investment bankers as to the fairness, from a financial point of view, to the holders of the Common Stock of the Company of the consideration to be received for any fractional shares in the Proposed Transaction. In conducting our analysis and arriving at our opinion as expressed herein, we have reviewed and analyzed, among other things, the following:

i. a draft of the proxy statement dated September 29, 2003;

ii. the Company’s Form 10-K for the period ended December 31, 2002, its Forms 10-Q for the periods ended March 31, 2003 and June 30, 2003 and its Form 8-K filed on September 15, 2003;

\ Morgan Joseph & Co. Inc.  \   NTL Europe   31 \

Form of Fairness Opinion Letter (cont’d)

iii. certain financial and other information of the Company that was publicly available or provided to us by the Company;

iv. the reported prices and trading activity for the Company’s Common Stock and Preferred Stock; and

v. certain internal information and other data relating to the Company, its business and prospects, including certain financial projections and estimates, provided to us by management of the Company.

We have also met with certain officers and employees of the Company concerning its business, operations, assets, present condition and prospects and undertook such other studies, analyses and investigations as we deemed appropriate.

In arriving at our opinion, we have, with your permission, assumed and relied upon the accuracy and completeness of the financial and other information used by us and have not attempted independently to verify such information, nor do we assume any responsibility to do so. We have assumed that the Company’s financial projections and estimates provided to or reviewed by us have been reasonably prepared based on the best current estimates and judgment of the Company’s management as to the future financial condition and results of operations of the Company. We have made no independent investigation of any legal, accounting or tax matters affecting the Company, and have assumed the correctness of all legal, accounting and tax advice given the Company and its Board of Directors or any committee thereof. We have not conducted a physical inspection of the properties and facilities of the Company, nor have we made or obtained any independent evaluation or appraisal of such properties and facilities. We have not been authorized by the Company to solicit alternatives to the Proposed Transaction. We have also taken into account our assessment of general economic, market and financial conditions and our experience in similar transactions, as well as our experience in securities valuation in general. Our opinion necessarily is based upon economic, financial, political, regulatory and other conditions as they exist and can be evaluated on the date hereof and we assume no responsibility to update or revise our opinion based upon events or circumstances occurring after the date hereof. This letter and the opinion expressed herein are for the use of the Special Committee of the Board of Directors (the “Special Committee”) and the Board of Directors of the Company. This opinion does not address the Company’s underlying business decision to approve the Proposed Transaction, and it does not constitute a recommendation to the Company, its Board of Directors, the Special Committee, its shareholders, or any other person as to any specific action that should be taken in connection with the Proposed Transaction.

\ Morgan Joseph & Co. Inc.  \   NTL Europe   32 \

Form of Fairness Opinion Letter (cont’d)

This opinion may not be reproduced, summarized, excerpted from or otherwise publicly referred to or disclosed in any manner without our prior written consent, except the Company may include this opinion in its entirety in any proxy statement or information statement relating to the transaction sent to the Company’s shareholders; provided that any description or reference to Morgan Joseph & Co. Inc. or this opinion included in such proxy statement or information statement shall be in form and substance reasonably acceptable to us.

We have acted as financial advisor to the Special Committee in connection with the Proposed Transaction and will receive a customary fee for our services. In addition, the Company has agreed to indemnify us for certain liabilities arising out of our engagement. Morgan Joseph & Co. Inc., as part of its investment banking business, is regularly engaged in the valuation of businesses in connection with mergers, acquisitions, underwritings, private placements of listed and unlisted securities, financial restructurings and other financial services. As you are aware, Mr. H. Sean Mathis, a director of the Company, is also affiliated with Morgan Joseph & Co. Inc.

Based upon and subject to the foregoing and such other factors as we deem relevant, it is our opinion as investment bankers that, as of the date hereof, the consideration to be received for any fractional shares by the holders of the Common Stock in the Proposed Transaction is fair, from a financial point of view, to such holders.

Very truly yours,

MORGAN JOSEPH & CO. INC.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   33 \

B. Description of Subsidiaries
NTL Europe Condensed Organization Chart

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Description of Subsidiaries
Major Holding Companies

NTL Europe, Inc.
 
Parent holding company
   
Core asset is cash (approximately $57.3MM as of 8/03)
   
Parc Holdings, Inc. (“Parc Holdings”)
 
100% owned by NTL Europe
   
Significant businesses include Premium TV, Cablecom and NTL Asia
   
NTL (Delaware Two)
 
100% owned by Parc Holdings, Inc.
   
Significant assets include interests in ITV News Channel and the Studio Channel

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   35 \

Description of Subsidiaries under Parc Holdings
Premium TV Holdings Corp.

Summary Description
 
Premium TV Holdings Corp. (“PTV Holdings”) is a US holding company for entities related to sports TV and internet content business
   
    – 

Many of these investments now have little or no economic value

   
Premium TV Ltd. (“PTV”) is the principal operating subsidiary of PTV Holdings and the entity through which most of its investments and joint ventures were made. The principal PTV businesses are summarized below.

 

Web Hosting Joint Ventures
 
PTV entered into a 50/50 joint venture with the Football League (12/00) to provide web hosting for approximately 75 UK football clubs (representing the “tier two” of football clubs in the UK).
   
    – PTV also entered into 50/50 joint ventures with the Glasgow Rangers (6/00), Newcastle United (12/99), Aston Villa (1/00), Middlesborough (3/00) and Leicester City (7/00) to operate web sites with exclusive internet rights to video, audio and other information (including mobile telephone rights).
       
PTV’s internet sites provide team fans with up-to-date statistics, exclusive pre- & post-game interviews with players & coaches, an archive of video clips of game highlights & best plays, access to club internet merchandise shops, and opportunities to exchange views with other fans.
   
PTV provided all of the initial funding for its joint ventures except the Newcastle joint venture, which was jointly funded by PTV and Newcastle.
   
PTV’s joint venture agreement with the Glasgow Rangers included a commitment to provide web hosting services and to fund up to £6MM of loans to the joint venture, which is guaranteed by Parc Holdings.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   36 \

Description of Subsidiaries under Parc Holdings
Premium TV Holdings Corp. (cont’d)

Web Hosting Joint Ventures (cont’d)
 
PTV’s revenue streams related to its internet business are comprised of subscription revenue for its broadband service, advertising & sponsorship revenue, e-commerce revenue, betting revenue, and other revenue.
   
PTV has a current cash burn rate of approximately £5.5MM per year. As part of these agreements, PTV has set aside an escrow account (aggregate balance of £5.75MM as of 6/30/03).
       
    – Management conservatively estimates that PTV will need an additional £1.0MM to stay in compliance of the funding obligation.
       
In addition, PTV also made equity or equity related investments in four of the five above mentioned clubs (apart from Newcastle United) that ranges from 6% - 10% equity interests.
   
Management believes that PTV has realized unsatisfactory returns on its investments in these joint ventures. The prime reasons for this are the absence of sizable revenue streams as originally envisioned and the uneconomic revenue and cost split to PTV.
       

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   37 \

Description of Subsidiaries under Parc Holdings
Cablecom and NTL Asia

Cablecom
 
Cablecom is Switzerland’s largest cable operator with approximately 54% of the Swiss cable television market as of December 31, 2002.
   
    – For the six months ended June 30, 2003, Cablecom had revenues and EBITDA of $229.2MM and $79.5MM, respectively.
       
As per Swiss law, Cablecom has been “overindebted” beginning in the end of 2001, and accordingly, may be required to file for insolvency proceedings in Switzerland.
   
Cablecom and its lenders have been involved in ongoing discussions regarding a complete financial restructuring of Cablecom which will, among other things, wipe out 100% of NTL Europe’s equity interest in Cablecom.
   
NTL Europe’s 100% equity interest in Cablecom currently has almost no fundamental value given the amount of debt and the minimal free cash flow.
   
    – As of June 30, 2003, Cablecom had $2.80BN of bank debt, representing 35.2x its annualized EBITDA for the six months ended June 30, 2003.
       
The Company has sold a call option to an affiliate of Apollo Management pursuant to which Apollo has the option to purchase NTL Europe’s equity interest in Cablecom for $15MM.
   
    – The Company’s management expects Apollo to exercise such option in the next 45 days; however, there are no assurances of it doing so.

 

NTL Asia
 
NTL Asia, together with New NTL’s branch office in Singapore, was setup to offer, design and build consultancy & system integration services to broadcasters in Malaysia and Thailand.
   
The Company has reduced staff by 30 - 40%. The Company is currently in the process of winding down NTL Asia and looking for a buyer.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   38 \

Description of Subsidiaries under NTL Europe
Two Way TV and NTL LanBase

Two Way TV
 
Two Way TV (“TWTV”) is the UK market leader in interactive and enhanced television.
       
    –  Enhanced television allows viewers to participate in popular games, sporting events and reality television programs.
       
NTL Europe owns 38% of TWTV. The other investors include Scandia Media Investments (37%), Liberate Technologies, Inc. (18%) and various private investors & present/former employees (7%).

 

NTL LanBase
 
NTL Lanbase, based in Madrid, Spain, installs & maintains local & wide area networks for a number of businesses in Spain.
   
Management is considering a sale of LanBase.

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   39 \

Description of Subsidiaries under NTL (Delaware Two)
ITV News Channel

ITV News Channel (“ITV”)
 
A 24 hour news channel aired in the UK.
   
The Company, through NTL (Delaware Two), owns 35% of the equity interest in ITV.

 

 

\ Morgan Joseph & Co. Inc.  \   NTL Europe   40 \

C. “Going Private” Cost Savings

Management’s Estimate

NTL Europe, Inc.

Analysis of Costs of Going Private and Anticipated Savings

    Low   Medium   High  
   
 
 
 
Costs of Going Private:  
Piper   $ 75,000   $ 125,000   $ 175,000  
McKenna Long     20,000     30,000     40,000  
Morgan Joseph   225,000     225,000     225,000  
Printing and Mailing     85,000     85,000     85,000  
Special Committee     30,000     30,000     30,000  
Proxy solicitor     25,000     30,000     35,000  
Payment to Common Holders     75,000     100,000     125,000  
   
 
 
 
Costs of Going Private     535,000     625,000     715,000  
                     
Cost Savings:                    
Annual savings Legal (10Q’s, 10K’s, 8K’s)   $ 100,000   $ 150,000   $ 200,000  
Annual Accounting Fees     125,000     187,500     250,000  
Printing and mailing 10-k and proxy     85,000     85,000     85,000  
Reduction of D&O premium     400,000     500,000     600,000  
   
 
 
 
Total Annual Savings     710,000     922,500     1,135,000  
Savings on D&O Tail     900,000     1,125,000     1,350,000  
   
 
 
 
Total 1 year savings by going private     1,610,000     2,047,500     2,485,000  
   
 
 
 
One Year Net benefit by going private   $ 1,075,000   $ 1,422,500   $ 1,770,000  
   
 
 
 
                     
2 Year Analysis:                    
One year net benefit   $ 1,075,000   $ 1,422,500   $ 1,770,000  
Add: Annual savings one additional year     710,000     922,500     1,135,000  
Avoidance of Section 404 Compliance in 2004     100,000     150,000     200,000  
   
 
 
 
Approximate 2 year net benefit   $ 1,885,000   $ 2,495,000   $ 3,105,000  
   
 
 
 
\ Morgan Joseph & Co. Inc.  \   NTL Europe   41 \