A New York-based shareholder of Jones Intercable Inc. has
filed a possible class-action suit regarding Comcast Corp.'s proposal to exchange 1.4
shares of its stock for every one share of Jones, covering up to 79 percent of Jones'
The shareholder filed the suit in District Court in Denver
last Monday, claiming that Comcast is attempting to acquire Jones "without paying an
adequate or fair price for the company's shares."
Comcast already owns about 39 percent of Jones' stock,
which it acquired in April as part of its deal with BCI Telecom Holdings Inc. (BTH), a
unit of Canadian telecommunications giant Bell Canada.
Comcast made the proposal for up to 79 percent of
Jones' stock last week, valuing Jones' shares at about $50.31 each, or about a 9
percent premium on Jones' class-A shares. The deal would total about $840 million.
But Jones shareholders apparently saw the offer as a slap
in the face, and some analysts see the Comcast proposal as the beginning of negotiations
Janco Partners analyst Ted Henderson called the Comcast
offer "substantially below market."
Jones reported sluggish cash-flow margins for the second
quarter, which some analysts saw as the reasoning behind Comcast's low offer. The
proposal would value Jones at about $3,500 per subscriber -- substantially lower than
recent deals, which have topped $5,000 per customer.
Jones reported cash flow of $36.7 million for the quarter
on revenue of $132.7 million, representing a 27.21 percent cash-flow margin for the
period. Although Jones said $13.9 million in one-time charges impacted cash flow, even
after adjusting for those charges, cash-flow margins would have dropped to 37.7 percent --
historically low by Jones standards.
Jones has about 1 million subscribers, but it is well
clustered and it has some major-market operations, including Washington, D.C.
Comcast officials declined comment on the suit.
Henderson, in a report issued shortly after Comcast's
offer, wrote that Jones' quarterly results probably played a significant role in the
price Comcast was willing to pay.
"[It is] no coincidence that the Comcast offer for 79
percent of the outstanding shares came on the day Jones announces its worst quarter in
recent memory," Henderson wrote. "Why Comcast is messing around with this and
potentially stimulating the ire of the many common shareholders of Jones and Comcast is
beyond us. This should be an easy, nondilutive [at $4,000 per subscriber] stock
transaction for Comcast that is not significantly material to the number of shares they
have outstanding. We think that the shareholders will make Comcast see the light, and that
this deal will be sweetened. At least the much anticipated process is starting."
This is not the first lawsuit filed by Jones shareholders.
In June a group of investors sued Jones in federal court in Denver, claiming that the MSO
failed to disclose material information to its partners when it sold its Palmdale, Calif.,
The investors -- a group calling itself City Partnership
Co. -- claimed that Jones should have told investors in a proxy statement that
cable-system valuations had increased significantly since the system was appraised in
Jones sold the Palmdale system for about $2,200 per
subscriber at a time when systems were being sold for more than $3,400 per customer.