Cox Snags Multimedia for $5,100 Per Sub

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Cox Communications Inc. is quickly shedding its image as
the most conservative of the large cable operators, landing its third major system deal
this year with the acquisition of Multimedia Cablevision Inc., Gannett Co.'s
cable-television division, in a deal valued at about $2.7 billion.

Cox was one of five cable operators vying for the hand of
Multimedia and its 509,000 subscribers. Comcast Corp., Adelphia Communications Corp.,
Charter Communications Inc. and the Washington Post Co. were all rumored to be in the
running. However, the bidding may have gotten a bit too rich for the other players as it
began to top $5,000 per subscriber.

Multimedia has about 509,000 subscribers in Kansas,
Oklahoma and North Carolina. The deal is predicated on Multimedia's delivery of 522,000
subscribers to Cox. Cox spokeswoman Ellen East said the Wichita, Kans.-based company
should be able to provide that by the time the deal closes at the end of the first quarter
next year.

Based on 522,000 subscribers, the deal is worth about
$5,100 per customer. However, Cox said that minus the tax benefits of the deal -- about
$350 million -- and other synergies, the transaction is worth about $4,500 per subscriber.

Cox's stock took a bit of a beating after news of the
acquisition was released July 27, closing down 81 cents a share on that day to $38. On
July 29, the stock continued to slide, closing at $36.38 each.

Gannett had been shopping the Multimedia systems for about
one month. Gannett spokeswoman Mimi Feller said the decision to sell to Cox was a simple
one: it was a great deal.

"We got a really good offer, that's all there is to
it," Feller said.

Hoak, Breedlove Wesneski & Co. cable analyst Murray
Arenson liked the deal, adding that it adds to Cox's existing clusters.

"I think this is a good fit," Arenson said.
"It fits into what Cox is trying to do."

Cox has been making moves all year to push itself toward
the 6.5 million-subscriber mark and create more powerful clusters in the Southeast and
Southwest.

But Stephens Inc. analyst John Corcoran said that while the
Multimedia deal does bolster some of Cox's clusters, the price just may be too high.

"This says to me that we must be approaching the
high-water mark in cable valuations and subscriber valuations," Corcoran said.
"We're not talking about $5,100 per subscriber in an affluent suburb of Washington,
D.C. These are systems that are clearly a step down. Even with rebuilt plant, there has to
be a limit to the penetration you're going to get on high-speed data services. There is a
fundamental difference between people in Manhattan, N.Y., and Manhattan, Kan."

But despite the size of the deal, it is not the most Cox
has paid for a cable operator. Cox paid about $5,400 per subscriber for its $1.4 billion
cash acquisition of 260,000 customers from Media General Inc. in Northern Virginia in
April.

Cox spokeswoman Ellen East said while her company has been
aggressive in its own way in obtaining cable properties, this may be Cox's last big
acquisition for a while.

"We've been real strategic in acquiring systems that
fit well with our operating strategy," East said. "We've spent a total of about
$11 billion [this year] -- that doesn't come close to AT&T. For us that has been an
aggressive pace. We won't stop looking for good opportunities, but we won't be as
aggressive."

Although available deals are dwindling fast, Arenson added
that he does not expect Cox to give up on acquisitions so soon.

"Scarcity value is an issue," Arenson said.
"The ones that aren't already spoken for, there aren't many of those left. But if you
look at the mid-market strategy Cox has, they probably have some targets. Fred Nichols
[president of TCA Cable TV Inc., a recent Cox acquisition] has talked about getting to the
2 million to 3 million subscriber range."

TCA, which Cox agreed to purchase in May for $4 billion,
has about 883,000 subscribers in mid-sized markets in the Southwest.

The Multimedia acquisition doubles Cox's presence in
Oklahoma City, to 240,000 subscribers. In addition, the company gets another 303,000
customers in Wichita, Topeka and Manhattan, Kansas. Those systems, combined with Cox
properties in Oklahoma, Arkansas, Louisiana, Texas and Nebraska, create a central U.S.
supercluster with more than 2.4 million subscribers.

The Multimedia systems are also in excellent shape, with 94
percent of its Oklahoma systems, 86 percent of its Kansas systems and 34 percent of its
North Carolina systems at 750 megahertz and above. In addition 94 percent of Oklahoma, 90
percent of Kansas and 21 percent of North Carolina are two-way capable. The company has
already launched digital cable and high-speed Internet services in several markets. The
average monthly revenue per subscriber is $42.50.

Both the Oklahoma and Kansas systems are also tightly
clustered. The Wichita and Oklahoma City operations, which represent 52 percent of
Multimedia's total subscriber base, are served off of two headends. About 76 percent of
all customers are served by seven headends.

Daniels & Associates president and CEO Brian Deevy said
while Cox has kept a relatively low profile amid the recent acquisition frenzy in the
industry, it has picked its markets carefully.

"Quite frankly, maybe they have been a little quieter
than most," Deevy said. "They have picked their targets and become the major
player in some very desirable markets. They have as attractive a set of assets as anybody
in the cable business right now."

Daniels and Morgan Stanley Dean Witter & Co. served as
financial advisors to Cox on the deal.

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