Cox Agrees to Buy Gannett’s Cable TV Unit

Spurred by an industrywide consolidation that has pushed cable prices to a peak, Cox Communications Inc. has agreed to buy Gannett Co.’s cable systems for $2.7 billion in cash.

Under the deal, Cox would acquire one of the last available cable properties, Gannett’s Wichita, Kan.-based Multimedia Cablevision unit, which has 522,000 customers in Kansas, North Carolina and Oklahoma.

Gannett would concentrate on its 74 daily newspapers, which include USA Today, and its 21 television stations.

The deal, which must be approved by regulators and shareholders, would give Cox 6 million subscribers nationwide, strengthening its position as the nation’s fifth-largest cable operator, behind Paul Allen-owned Charter Communications, which would serve 6.2 million customers after pending acquisitions.

AT&T;, which bought Tele-Communications Inc. in March and has agreed to buy MediaOne Group, would be the largest cable operator, followed by Time Warner and Comcast.

In the last year, 14 of the nation’s top 20 cable companies have changed hands in a consolidation frenzy that would leave more than 90% of the nation’s 64 million cable households controlled by only seven operators.

Cable companies are bulking up to achieve economies of scale to roll out new services--such as high-speed Internet connections, phone calling and interactive TV--that telephone and satellite rivals also are racing to provide. Acquisitions and a series of customer swaps under negotiations are designed to give the surviving seven cable providers control over large regional clusters of customers that are easier to serve.

Earlier this month, for instance, Cox agreed to swap $2.93 billion in AT&T; stock and $750 million in cash for several AT&T; cable systems to become the dominant cable provider in Louisiana and Oklahoma.

The sale by Gannett leaves Washington Post as the only newspaper group with cable holdings. Although the Post has not been inclined to sell Cable One, analysts say the group, with 650,000 subscribers, is not big enough to compete in this new world of competition, and they target it as the last sizable cable acquisition candidate.

This final phase of consolidation is expected to reduce the splintered Los Angeles marketplace to just two companies, Charter and Adelphia Communications, with three, including Cox, in all of Southern California. More than 30 companies shared the region only a few years ago. MediaOne and Time Warner both are expected to swap out of the market.

Cox, a family-controlled Atlanta-based company, has acquired four other cable systems this year.

The race to consolidate has ratcheted up cable prices to an all-time high. Gannett is getting a premium price--$4,500 per subscriber--in the deal. That compares with the $4,900 that AT&T; agreed to pay for MediaOne Group in May, after a bidding war with Comcast, and the $5,200 that Cox agreed to pay earlier this month for TCA Cable.

Analysts say Cox is agreeing to pay a high price because most of the Gannett systems already are upgraded for new services and are highly clustered.

Industry sources say the price was also bid up in an aggressive competition with Charter Communications, which is said to have offered a comparable price, but not all cash.

But some analysts worry that these rich prices will make it harder for cable companies to earn returns on their investments, especially if price wars break out with phone and satellite providers, as expected. Cable companies are counting on doubling or tripling their customers’ current monthly bills by selling Internet access and phone services.

Although Multimedia would give Cox dominance in Oklahoma City, most of its systems are in less densely populated areas that have been less desirable.

For its part, Gannett has made a killing on Multimedia since its purchase for $1.7 billion four years ago. It has since sold off the unit’s radio stations and security business. Its TV production operation, which produced the syndicated talk shows of Phil Donahue, Sally Jessy Raphael and Jerry Springer, is now part of USA Networks Inc.

Cox closed down 81 cents to $38 a share, and Gannett rose $1.88 a share, to $76.38, both on the New York Stock Exchange.