Cox Agrees to Acquire TCA Cable

Cox Communications Inc. agreed to buy TCA Cable TV Inc. for about $4 billion in stock, cash and assumed debt to become the fourth-largest U.S. cable television company, pulling closer to industry leaders Time Warner Inc., AT&T; Corp. and Comcast Corp.

Shareholders of TCA, which has 883,000 customers concentrated in Texas, Arkansas and Louisiana, would get about $63.17 a share, or 21% more than Tuesday’s closing price. They may choose cash, stock or a combination of $31.25 in cash and 0.3709 share of Cox Class A stock. Cox would assume $736 million of TCA debt.

Atlanta-based Cox serves 250,000 subscribers in Orange County and 475,000 in San Diego. The TCA acquisition, which follows its agreement last month to buy Media General Inc.’s cable systems for $1.4 billion, would bring the company’s customer count to 5 million households.

The cable industry has been rapidly consolidating its clusters of subscribers to help spread out the cost of new services, such as high-speed Internet access and telephone, over its lines. The more subscribers a cable operator has in one area, the less costly it is to roll out these new services.

Cox, which has one of the best reputations in the industry for service, has also been careful in its acquisitions to retain its concentration in densely populated urban centers such as Las Vegas, Phoenix and San Diego.

(In 1994, Times Mirror Corp., the parent company of the Los Angeles Times, sold its cable systems, concentrated in Orange County, to Cox for stock and cash.)

Many industry executives questioned the fit between Cox and Tyler, Texas-based TCA, whose subscribers are mostly in less desirable rural areas that are costly to upgrade for new services.

They were particularly surprised by the price Cox is paying for systems that are not particularly well-positioned for delivering new services.

Cox, currently the No. 5 U.S. cable company, is paying about $4,115 a customer for TCA, said Jimmy Hayes, Cox’s chief financial officer. That is more than the $3,000 a subscriber AT&T; paid for Tele-Communications Inc., whose systems are largely out of date. But the amount is less than the $4,900 AT&T; has agreed to pay in a just-ended bidding war for MediaOne Group Inc., whose systems are concentrated in urban markets and are some of the most advanced in the industry.

The relatively high price is partly a result of the few cable systems left for sale after two years of hyper-consolidation.

“We’re seeing consolidation move from the highest levels of the industry down in size to middle-level players,” said John Corcoran, an analyst at Stephens Inc., who has a “buy” rating on TCA.

TCA Cable shares rose $7.97 to close at $60.03 on Nasdaq. Cox shares fell $1.94 to close at $86.06 on the New York Stock Exchange.

The transaction has been approved by both companies’ boards, and about 21% of TCA shareholders have already agreed to vote for the purchase, Cox said. The Wall Street Journal reported the transaction Wednesday.

For Cox, which added customers in the demographically affluent northern Virginia market with its Media General purchase, the transaction also represents an expansion into the middle-income markets.

“TCA represents an ideal platform for further middle-market consolidation,” said James Robbins, Cox’s president and chief executive.