Cable Operators

Mediacom: Public No More

3/14/2011 12:01 AM Eastern

On March 4, after an overwhelming
majority of its minority shareholders
voted in favor of the transaction, Mediacom
Communications officially became a
private company. It was the culmination
of a months-long effort by founder, chairman
and CEO Rocco Commisso, and was
spurred by what he said was Wall Street’s
failure to properly value his company and
a growing concern that his employees were
being unfairly punished by the market.

Commisso, who founded Mediacom in
1995 and took it public in 2000, had been
hinting at taking his mid-sized MSO private
for years. At the 2009 Cable Show in Washington,
D.C., he expressed his frustration
with Wall Street’s tepid response to cable
performance during the worst period of the
recession in late 2008 and early 2009.

MARKET MISERY

Although cable operators consistently reported
double-digit cash-flow growth and
high single-digit revenue growth during
arguably the worst economy in decades,
valuations remained low. For Mediacom,
which at the time was trading at a multiple
of 4 times estimated free cash flow,
the blow was particularly harsh
given its 8.4% revenue growth
and 10.3% cash-flow growth in
2008. In addition, free cash flow
was expected to grow 10 times
in 2009 (it grew nearly 12 times).

“If you don’t get the right
multiple then, when are you going
to get it?” Commisso asked
at the 2009 event.

Lately, Mediacom’s efforts to
generate strong free cash flow
— it reported $1.46 per share of
free cash flow in 2009 — went
unrewarded.

“I thought that [free-cashflow generation] was finally going
to be the thing that would turn the stock
around,” Commisso said in an interview
last week. Despite a brief run-up, Mediacom
stock languished again that year.

Commisso said it wasn’t only Mediacom
that was being penalized. Other public cable
operators — Comcast, Time Warner Cable,
Charter Communications and Cablevision
Systems — all were trading at lower cashfl
ow multiples than Mediacom.

And subsequent moves that he made, including
buying out longtime backer Morris
Communications in a deal that retired 30%
of Mediacom’s stock, fell on
deaf ears.

“Before this transaction, we
bought over 50% of the public
stock, which is huge. And
yet the stock doesn’t perform,”
he said. “Neither my employees
nor the public stockholders
were getting the returns I
thought they deserved.”

Ironically, Mediacom
stock had one of its biggest
growth spurts ever in 2010,
rising 89%, or $4 per share,
to close out the year priced
at $8.47 each. But almost all
of that increase came after
June, when Commisso first announced that
he wanted to take the company private.

FIGHTING ON

Commisso said the first thing he wants to do
now that the transaction is closed is get back
to managing his company. And though the
normally outspoken executive has been relatively
quiet during the going-private process,
that won’t last long.

“I’m always going to fight for what I believe
is right,” Commisso said. “That is not going
to change.”