In a complex deal worth $2.3 billion, Times Mirror Co. is planning to spin off its cable television operations to form a new, publicly held company with Atlanta-based Cox Enterprises Inc.
The combination of the two companies' cable units would create the nation's third-largest cable operator, with 3 million subscribers.
Cox would acquire the cable system by assuming about $1.4 billion worth of Times Mirror debt, and swapping about $900 million worth of privately held Cox shares, sources said. Analysts called the deal--equivalent to about 11 1/2 times the expected 1994 cash flow for Times Mirror's cable operations--positive for both sides.
"We think Times Mirror is getting a very good price and Cox is getting a very good system," said John Reidy, who follows the cable industry for Smith Barney Shearson in New York. "Times Mirror shareholders may well end up with (stock in two companies) which sell for more than today's one."
Analysts said the deal could signal a new round of consolidation in the cable industry, driven by the massive technology investments required to compete with the telecommunications industry for control over the coming era of interactive communications. The move, analysts said, also points up the desire among cable operators to form regional clusters to better compete against local telephone companies. Tele-Communications Inc., the country's largest cable operator, and Viacom Inc., the 13th-largest operator, are said to be close to an agreement to combine their cable systems in San Francisco and Seattle.
Times Mirror stock closed up $4 on Friday, at $36 a share on the New York Stock Exchange. The company--whose holdings include the Los Angeles Times and Newsday in New York as well as magazine and book publishing interests--issued a statement confirming an "agreement in principle for the disposition of its cable television business to Cox Enterprises," but declined further comment on the continuing negotiations.
The deal, first reported in USA Today on Friday, is expected to be finalized this weekend. Cox is expected to manage the company, but it was not immediately clear how big a stake Times Mirror shareholders would have. Sources said the Outdoor Channel, the first effort of Times Mirror's new cable programming division, would be guaranteed a spot on the new system's lineup. The cable programming arm will remain part of Times Mirror.
Cox's cable unit is the nation's sixth-largest cable company with 1.8 million subscribers, including systems in San Diego, southeastern Virginia and the New Orleans area. Times Mirror Cable is ranked 11th with 1.2 million cable subscribers, including systems in Phoenix, Orange County and suburban San Diego.
The agreement also could mark the beginning of a trend in which media conglomerates move to separate information and entertainment divisions, such as those that produce newspapers and programming, from the delivery systems, at a time when each is taking on new roles.
"This is the inverse of the Time Warner merger," said Jonathan Seybold, a Malibu-based new media analyst, referring to the largest media merger in history, in which movie, record and TV production was merged with cable and magazine operations. Time Warner is the nation's second-largest cable operator.
But in an age in which information, entertainment and advertising can be easily converted to digital formats and sent over delivery mechanisms ranging from the global computer web known as the Internet to wireless personal communications devices, some argue that it may make more sense for producers of such content to operate unfettered by the interests of any particular transmission system, and vice-versa.
Times Mirror has been exploring delivery of its magazine and newspaper content via CD-ROM and the Prodigy on-line service, which could be viewed as competitive with cable delivery. Under the Cox-Times Mirror deal, Cox's cable systems would also apparently be spun off into the new entity.
Seybold added: "In the end a content company should be in the position of delivering its content over any and all delivery mechanisms, and a company that operates the pipelines and the servers should be offering the broadest possible content over its services."
The ongoing consolidation of the cable industry was interrupted over the last year as cable and phone companies flirted with the idea of joining forces across industries to pay for the costly roll-out of the "information superhighway."
But two such planned alliances--Bell Atlantic's with Tele-Communications Inc. and Cox's with Southwestern Bell--collapsed this year when the Federal Communications Commission slapped stiffer rate regulations on the cable industry and company stocks slipped precipitously.
Now that the Baby Bells appear to have decided to go it on their own, analysts say, consolidating resources within the cable industry is even more crucial. And with FCC Chairman Reed Hundt signaling at the national cable conference last month that the worst of his agency's actions were over, the regulatory environment appears more receptive to mergers of this kind.
"Over the next several years the cable business is going to get more competitive, require bigger investments in technology, and become much more difficult to manage," said Melissa Cook, an analyst at Prudential Securities in New York. "Only the biggest companies have a chance of surviving."
In paying a healthy premium for Times Mirror's cable systems, Cox appears to be giving a vote of confidence to the industry, which has been rocked by rate rollbacks, climbing interest rates and the perception that the phone companies have the upper hand in the digital highway race.
Cox is not the first cable firm with which Times Mirror has explored forging an alliance. Last fall the firm appeared close to a deal with Boston-based Continental Cablevision, the third-ranked U.S. cable company. TCI, Comcast Cable and Century Cable have also expressed interest in partnering with Times Mirror.
Times Mirror's cable unit accounted for 28% of the company's pretax profit year (after accounting for one-time charges), and 13% of its revenue. Earnings for the cable division came to $106.5 million.
Analysts noted that the managements of the two firms have several things in common--each is dominated by family owners, each holds newspaper and cable properties and each recently sold TV stations. Cox has already launched an on-line version of its Atlanta Journal and Constitution on Prodigy, and Times Mirror executives have worked closely with their Cox counterparts to model their version of The Times on-line.
James Cox Kennedy, Cox's chairman, has been aggressively seeking opportunities to move the company into the interactive age. Times Mirror similarly has joined the multimedia fray with its recent acquisitions of software firms Allen Communication and Ehrlich Multimedia, and its stake in CD-ROM publisher Digital Pictures.
Times staff writers John Lippman and James Peltz contributed to this story.
Top Cable Operators in U.S.
The combination of Cox's and Times Mirror's cable operations would create the third biggest U.S. cable firm, in numbers of subscribers. Here are the current Top 10 U.S. cable companies:
SUBSCRIBERS COMPANY (IN MILLIONS) Tele-Communications 10.70 Time Warner Cable 7.20 Comcast Cable 2.90 Continental Cablevision 2.90 Cablevision Systems 2.16 Cox Cable 1.80 Jones Intercable Inc. 1.30 Cablevision Industries 1.29 Adelphia Comm. 1.29 Times Mirror Cable 1.21
Source: Cablevision Magazine
Researched by ADAM S. BAUMAN