Times Mirror Deal With Cox Signals New Strategy : Media: Following the $2.3-billion sale of its cable operations, firm will focus on information services.

Times Mirror Co. confirmed Sunday that it has agreed to spin off its cable operations into a new venture with Atlanta-based Cox Enterprises Inc. for $2.3 billion, as part of a long-term strategy to become a major player in providing information services for the digital age.

Cox will manage the combined cable operations through its Cox Cable Communications Inc. subsidiary, which will become a publicly traded company. The deal creates the nation’s third-largest cable TV operator, with 3.1 million subscribers.

Times Mirror’s shareholders--excluding the founding Chandler family’s trusts--will retain 20% of the new company, receiving about $932 million worth of Cox Cable’s common stock, and Cox will also assume $1.364 billion in new Times Mirror debt.

Times Mirror plans to use at least part of the proceeds to develop new programming ventures. As part of the strategy, it will form a partnership with Cox to develop new cable TV channels to be carried over the combined systems.

At a time of on-again, off-again media mergers--when companies are struggling to deal with technological changes that could dramatically alter the way consumers receive information--Times Mirror in effect has decided to divide itself in two. The move separates the production of information--which has traditionally been the company’s core business--from its delivery.

“You come to a fork in the road where you have to decide what to do with your business, and we took the content side,” said Robert F. Erburu, Times Mirror chairman, president and chief executive. “Our feeling is that in order to be successful in cable you have to get a lot bigger, and to do that would have interfered with our intention to focus on content.”

With the cable business consolidated under Cox, Times Mirror will turn its attention to new ways of leveraging its existing assets: the Los Angeles Times, Newsday and New York Newsday, The Baltimore Sun, The Hartford Courant and some smaller papers; consumer magazines such as Popular Science and Outdoor Life; a profitable professional and textbook publishing business, and a recently launched television programming division.

Concerns about the future of newspapers in their current form is another reason Times Mirror is focusing on developing new modes of production and a wider breadth of media. Some analysts believe that most information will be delivered electronically in the future, rather than on paper.

“A substantial part of our business will still be the traditional newspaper business in five years,” Erburu said. “I don’t think things are going to change that fast. But the challenge for us will be to build the new businesses as fast as we can, because that is the only hedge we have against something happening to the traditional business faster than we think.”

After aggressively moving into cable TV in the 1970s, Times Mirror has not substantially expanded its holdings recently. In a statement Sunday, Cox said the Times Mirror systems in Orange County, Phoenix and other places will continue to operate as usual for the coming months. Cox added that the new company may not go into effect until the start of 1995.

Cox is currently the nation’s sixth-largest cable operator, with subscribers in San Diego, New Orleans and Virginia, among other places. The combined operations will form a regional cluster of systems in the Southwest which will enable it to better compete with local telephone companies in offering new information services.

For privately held Cox, the deal signifies a commitment to become a major force in delivering information services and entertainment.

The Atlanta-based company, whose holdings include the Atlanta Journal-Constitution and several TV and radio stations, has been in an aggressive mode recently. Last year, it offered $500 million toward QVC’s failed bid for Paramount Communications. The company also tried to merge its cable system with Southwestern Bell in a deal that ultimately failed over regulatory problems and other complications.

At a time when cable, phone, computer and consumer electronics firms are all squabbling over what the various forms of delivery systems will look like, analysts have noted that the companies producing the most versatile programming are in a particularly strong position.

To that end, Times Mirror and Cox said they plan to “explore a collaborative test” to provide an array of interactive information and entertainment services to homes and businesses over a fiber network in Irvine later this year, as many other phone, cable and programming companies are doing in superhighway test-beds throughout the country.

Indeed, the company has already signaled its interest in providing information that others can relay to consumers. In January, Times Mirror joined with Pacific Telesis Group in a venture that will offer electronic-shopping services. In April, it invested in Digital Pictures Inc. of San Mateo, with plans to provide interactive versions of Times Mirror’s magazines and newspapers to be distributed on CD-ROM. And distribution of an interactive version of the Los Angeles Times via Prodigy Services Co.’s on-line computer service is in the works.

Still, some analysts question the logic of dividing production from distribution, especially when cable generated 28% of Times Mirror’s pretax operating profit last year--nearly equal to the operating earnings of the newspaper group, which accounted for 53% of its revenue.

While the newspaper group’s operating profit plunged to $107.3 million in 1993, from $310 million in 1989, cable’s earnings steadily climbed to $106.5 million last year, from $58.1 million in 1989. (The profit figures take into account various restructuring charges.)

The loss of cable’s profits “is a very valid concern” to Times Mirror going forward, said Douglas M. Arthur, an analyst with Kidder Peabody & Co. “Why sell it? Strategically, having the cable operation might be a great vehicle down the road.”

But most analysts believe that consolidation in the cable industry is inevitable, as the race to rewire the nation with high-speed fiber cables requires bigger and bigger outlays of capital. And the consensus is that Times Mirror got a good price.

The spinoff will enable the firm to avoid a sharp tax bite that it would have incurred had the company sold the cable business for cash, and its transfer of debt to the new venture will vastly improve Times Mirror’s balance sheet, analysts said.

Following the sale of the cable operations, Times Mirror said it expects to cut the quarterly dividend on its common stock to between one-fifth and one-third its current level of 27 cents.

Times Mirror will first spin off all of its businesses other than cable into the new Times Mirror company, and all Times Mirror shareholders will receive one new Class A or Class C common share for each share they owned in the old Times Mirror. Voting interests in the new Times Mirror will thus remain unchanged.

The Chandler family, the company’s largest shareholder, which through two trusts owns over 50% of its voting stock, will not receive any shares of Cox Cable in the merger, because the terms of their trusts do not allow it.

Instead, they will receive a new class of dividend-paying, non-voting preferred stock in Times Mirror, which will be equivalent to their proportionate interest in the stock distributed to other shareholders.

While many industry observers believed the Chandlers’ desire for greater liquidity had fueled the search for a cable partner or buyer, Times Mirror executives said the Chandlers were not expected to sell their shares.

Cox Chairman James C. Kennedy will serve as chairman of the new combined cable systems and James O. Robbins, the current president of Cox Cable, will be president and chief executive officer. Erburu has been invited to take a seat on the firm’s board of directors, but he said he has not yet responded to the offer.

Times staff writer James Peltz contributed to this story.

A Look at the 2 Companies

The proposed merger of Times Mirror’s cable television operation into Cox Cable Communications would create the nation’s third-largest cable television operator in terms of subscribers. Here is a look at the two parent companies behind the deal:

TIMES MIRROR CORP.

* Headquarters: Los Angeles

* Chief Executive: Robert F. Erburu

* Employees: 26,936

* Major holdings: Publishes five metropolitan and two suburban newspapers and nine special-interest magazines. Also publishes medical, business, aviation, economics, art and lawbooks. Its cable television division is the nation’s 10th-largest, with more than 1.2 million customers in 13 states.

* 1993 revenue: $3.7 billion

Approximate revenue and % by division, in millions of dollars:

Division Revenue % of total Newspapers $1,981 53% Cable television $470 13% Book, magazine & other publishing $1,263 34%

* 1993 profit: $317.2 million

Earnings per share: $2.46

Friday stock price: $36, up $4 a share

COX ENTERPRISES INC.

* Headquarters: Atlanta

* Chief Executive: James C. Kennedy

* Employees: 31,000

* Major holdings: Publishes 18 daily and eight weekly newspapers, six broadcast TV stations and 13 radio stations. It owns 24 cable television systems, the nation’s sixth-largest cable operation, with 1.8 million subscribers.

* 1993 revenue: $2.7 billion

Approximate revenue and % by division, in millions of dollars:

Division Revenue % of total Newspapers $802.5 30% Cable television $668.8 25% Automobile auctions $615.3 23% Broadcasting $588.4 22%

1993 PROFIT: As a private company, not reported

Source: Bloomberg Business News; Company reports, Hoover’s Handbook

Researched by ADAM S. BAUMAN / Los Angeles Times