Cable Operators

Cox Could Shrink a Bit

3/13/2005 7:00 PM Eastern

While Insight Communications Co. awaits approval on a plan to take itself private, a bigger MSO is considering the sale of some assets — 900,000 subscribers in secondary markets — to help pay the $8.5 billion tab for its own privatization move.

Cox, currently the third-largest MSO with 6.3 million subscribers, would drop to 5.4 million customers if the system sales occur.

Just how much those systems will bring in has not been determined, and Cox isn’t saying either. But those assets, given their secondary-market locations, are likely to attract between $2,000 and $3,000 per subscriber, raising $1.8 billion to $2.7 billion.

Most of the systems are former TCA Cable Inc. properties, bought by Cox in 1999 for $4 billion in stock and assumed debt.

“We’re thinking this might be the best way to reduce debt, but also a way for us to speed growth in our core-profile markets,” Cox spokesman Bobby Amirshahi said. Those markets are mainly urban and suburban clusters like San Diego, Las Vegas and New Orleans.

Cox looked at several options, Amirshahi said, including selling off its 25% interest in cable programmer Discovery Communications Inc. That’s not on the table anymore, he said.

He also would not comment on how much of its debt Cox intends to shed, saying a decision on whether to pursue a sale should be made in a few weeks.

The systems are located in Texas (Lubbock, Midland, Amarillo, San Angelo and Abilene); North Carolina (Greenville, Rocky Mount, New Bern and Kinston); Humboldt County, Calif.; and smaller systems in Louisiana, Arkansas, Oklahoma, Mississippi and Missouri.

Cox hired Citigroup Global Markets, Lehman Brothers Inc., and JP Morgan Securities Inc. as advisers.

The MSO will keep Lafayette, La., which has about 100,000 customers and is located close to a Cox system in Baton Rouge. Atlanta-based Cox launched telephone service in Lafayette in late 2004 and “that’s a market we think fits our profile,” Amirshahi said.

Other systems included in the possible sale also sell telephony service, including those in West Texas. “The majority of these systems have been upgraded and many of them, since we purchased them in 1999, have doubled their channel lineups,” Amirshahi said.

Cox bought TCA in 1999, at the height of system-sale prices.

“I think it’s fair to say that acquisition looked a little different than most of the other acquisitions we’ve done previously,” Amirshahi said. “But I think our world has just changed in that we are now a private company [and] we have an obligation to our shareholder, Cox Enterprises, that we have to reduce debt.”

Cable-system valuations are climbing, and a number of financial players are looking to get back in the industry. Several private-equity firms have been involved in cable deals recently, including the ongoing auction of Adelphia Communications Corp.

Time Warner Inc. and Comcast Corp. are expected to win Adelphia — but big private-equity players like Kohlberg, Kravis, Roberts and Providence Equity Partners have also submitted offers.

March