KDDI eyes smaller stake in cable TV firm-source

TOKYO Feb 6 (Reuters) - KDDI Corp (9433.T), Japan's No.2 phone operator, plans to reduce the stake it will buy in Japanese cable network J:Com from U.S.-based cable operator Liberty Global (LBTYA.O) after regulators said KDDI's original plan was illegal, a source said.

KDDI had previously planned to buy Liberty's 37.8 percent stake in Jupiter Telecomunications Co (J:Com) 4817.Q for about $4 billion in a bid to challenge Nippon Telegraph and Telephone Corp's (9432.T) dominance in fixed lines in Japan. [ID:nTOE60O06F]

But Financial Services Agency officials told KDDI that that would violate a Japanese law that says there must be a public offering open to all shareholders when a buyer seeks to purchase more than a one-third stake in another company, said the source.

KDDI now plans to lower its purchase to a less than 33 percent stake in J:Com, said the source with direct knowledge of the matter. The source asked not to be named as the matter was not public yet.

KDDI had previously said that the TOB rule did not apply, because its plan was to buy three unlisted Liberty units, which together hold 37.8 percent in J:Com.

A public offering would likely lift the price of the deal beyond the 361.7 billion yen ($4.1 billion) KDDI had been willing to pay. That price would have already made it Japan's biggest media & entertainment industry deal in at least a decade.

KDDI, which wants to conclude the deal as scheduled in mid-Febraury, would obtain its objective to strengthen its tie with J:Com with a smaller stake, the source said. Sumitomo Corp (8053.T) holds 27.7 percent of J:Com.

(Reporting by Reiji Murai, writing by Mayumi Negishi; Editing by Keiron Henderson)