* Ziggo/UPC merger could strain high yield indices

* LGI at pains to let investors class exposures separately

* Ziggo bond refinancing could create poison pill

By Robert Smith

LONDON, Oct 25 (IFR) - Liberty Global (LGI) has fired the opening shot in its takeover battle for Dutch cable business Ziggo, but the close relationship the U.S. cable giant has forged with bondholders could complicate any attempt to merge the target firm with its UPC operation.

"Liberty has one of the best relationships with bond investors in the European high yield market," said one investor, explaining that it has kept investors happy by allowing them to class its myriad cable businesses as separate exposures.

LGI businesses such as Unitymedia, Virgin Media and UPC all have separate credit pools, and so carry separate bond tickers. This benefits portfolio managers as they break down exposures on a ticker basis, allowing them to list the businesses separately.

Several European cable businesses switched to a single "LBTYA" ticker at one point, according to three market sources, but the company reverted back to separate tickers after complaints from bondholders.

Maintaining these separate tickers could pose a problem for LGI's next target acquisition, however.

Ziggo confirmed last week that it had rejected an initial offer from John Malone's LGI, which already holds a 28.5% stake in the company. This was in response to a report in German weekly Manager Magazin that LGI intends to merge Ziggo with its UPC operations in the Netherlands and Belgian firm Telenet.

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Liberty's closeness to bondholders could thwart Ziggo/UPC merger