Cable Operators

Cox System Sale Draws Bidder Interest

7/15/2005 8:00 PM Eastern

Initial bids are in for Cox Communications Inc.’s 900,000 subscribers in the Southwest and Southeast regions, with at least two bidders vying for the systems.

Sources said last week that Cebridge Connections, the St. Louis MSO headed by Jerry Kent, and Mediacom Communications Corp., the Middletown, N.Y.-based mid-market MSO, have each submitted bids.

Cox put the systems — mainly the former TCA Cable properties it bought in 1999 — on the block in March. The company said it expects to select a buyer by early fall, with closing anticipated by late in the first quarter of 2006.

'TREMENDOUS INTEREST’

Cox Communications spokesman David Grabert would not speculate on potential bidders for the systems. He added that Cox has received a “tremendous amount of interest” concerning the properties.

Books on the systems went out in June. They 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 put the systems on the block mainly to help reduce some of the debt parent Cox Enterprises Inc. incurred last year in buying the 38% of Cox Communications’ publicly traded stock it didn’t already own, for about $8.5 billion.

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

Cox bought the TCA systems in 1999, at the height of the industry’s consolidation frenzy, for about $4,000 per subscriber. It is expected that those systems put up for sale could attract prices in the $2,000 to $3,000 per subscriber range. That would put the total price of the systems at $1.8 billion to $2.7 billion, well below the $4 billion Cox spent on TCA Cable in 1999.

That would appear to be in the price range for Cebridge and Mediacom, which has paid an average of $2,250 per subscriber in its most recent cable deals.

If Mediacom were to emerge as the winner for at least some of the Cox systems, it would be the first major purchase for the No. 8 U.S. MSO since its 2001 purchase of 800,000 subscribers from AT&T Broadband (now Comcast Corp.).

Mediacom paid about $2,600 per subscriber for those AT&T systems, effectively doubling in size to 1.6 million subscribers.

Mediacom has sat on the sidelines since then, focused on upgrading and rolling out new services. Lately, though, Mediacom has been losing customers to direct-broadcast satellite — 100,000 since the AT&T Broadband deal — and might feel a need to add scale.

Cebridge has been more aggressive: It bought four cable systems with a total of 50,000 subscribers in separate transactions for $135.9 million in the first quarter of last year and currently has about 480,000 customers. It, too, has held off paying high prices: those four transactions were done at an average of $1,900 per subscriber.

Cebridge declined to comment. Mediacom officials did not return calls for comment.

Sources in the financial community said that Cebridge Mediacom at least lobbed in initial offers.

DIVIDE AND CONQUER?

Those same sources said the two might split the Cox subscribers along existing territorial lines.

Cebridge, for instance, would likely be most interested in Cox’s properties in Texas — near its own stronghold in the state — Illinois, Indiana, Arkansas and Missouri. Mediacom could concentrate on Cox systems in North Carolina; Humboldt County, Calif.; and Missouri, near its own systems in those areas.

While speculation in the past has been that Cox would rather sell the systems in one large deal, Grabert said that the Atlanta-based MSO has no preference. “We are looking for the simplest transaction that maximizes value,” he said.

March