Cable Operators

Cox’s Parent Eyes Taking MSO Private

8/02/2004 3:55 AM Eastern

Cox Enterprises Inc.’s proposed take-out of Cox Communications Inc. lifted the cable sector Monday, with Cablevision Systems Corp. and Comcast Corp. experiencing the largest gains.

Cox Communications closed at $33.16 per share (up $5.58, or 20%) Monday, a 4% premium to CEI’s proposed $32-per-share offer for the 38% of the company it doesn’t own. While most analysts believe this means that CEI will have to sweeten its bid, a company spokesman said that isn’t necessarily the case.

“We think it’s a fair deal,” CEI spokesman Bob Jimenez said.

Fulcrum Global Partners LLC analyst Richard Greenfield said in a research note that it is likely that CEI will sweeten its offer. The question, he wrote, is how high will CEI go.

“We believe it is unlikely that CEI started this process without expecting to pay more than their initial price, especially as they have to clear the transaction through a special [independent director] committee,” Greenfield wrote.

Cox Communications would say only that it will appoint a special committee of its board of directors to evaluate the offer. No time frame was set.

“We expect this process to have no impact on day-to-day business operations,” Cox Communications said in a prepared statement. “We do not intend to comment further at this time.”

This wouldn’t be the first time Cox Communications went private. The company was publicly traded from 1968-85 (as Cox Broadcasting) when CEI proposed a buyout at $75 per share. Cox Communications went public again in 1995, primarily to create a deal currency for its acquisition of Times-Mirror Cable.

Jimenez said CEI decided to make the offer this time because it felt that the timing was right.

“This is a chance for CEI to make a substantial investment in assets they know well,” he added.

However, some analysts believe Cox management has been constantly frustrated with a stock market that gives it little reward for strong performance. Prior to Monday’s share-price surge, Cox stock was down 25% from the beginning of the year and 34% off its 52-week high of $36.95 per share, despite six consecutive quarters of positive cash-flow growth.

“Cox management has obviously been frustrated for a while,” Eagan said.

The Cox offer seemed to fuel speculation about other possible takeover candidates -- a leading reason for Cablevision’s price surge during the day. Cablevision stock went as high as $19.77 (up $2.30 per share) Monday before closing at $19.36 each, up $1.89 per share, or 11%.

Cablevision has been the subject of takeover speculation for years, with the latest possible suitor being Time Warner Cable.

Comcast, obviously not a takeover target, had the second-largest gain, closing at $27.97 per share Monday, up $1.17 each, or 4.4%.

Other publicly traded MSOs were up slightly. Time Warner Inc. rose 16 cents to $16.81; Charter Communications Inc. was up 6 cents to $3.15; Insight Communications Co. Inc. rose 14 cents to $8.94; and Mediacom Communications Corp. increased 23 cents to $6.80.

Direct-broadcast satellite service providers also saw an uptick from the Cox announcement. DirecTV Group Inc. was up 46 cents to $16.67 and EchoStar Communications Corp. rose 92 cents to $28.64.

Oppenheimer & Co. Inc. analyst Thomas Eagan said the rise in the cable sector is less about speculation that other cable companies will be taken private than it is about added confidence in a sector that has been sorely lacking.

“[The stock rise] reflects confidence in cable’s ability to perform,” he added.

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