Cable Industry Shares Up on Cox Plan to Buy Back Stock
A nearly $8-billion offer by Cox Enterprises Inc. to take its cable television business private gave a lift to industry stocks Monday after months of steady decline.
The family-owned media company already controls 62% of the publicly traded shares of Cox Communications Inc., the nation’s fourth-largest cable television provider, which serves some 6.3 million cable subscribers nationwide and about 800,000 in Southern California.
The cable giant is viewed by analysts as one of the best-managed companies in the industry, with an enviable record in customer service.
Atlanta-based Cox Enterprises’ interest in buying the outstanding shares was taken as a sign that Wall Street had become too pessimistic about the industry’s competitive standing.
“This could be a catalyst for a reevaluation of the cable business,” said Jessica Reif Cohen, an analyst at Merrill Lynch & Co.
“The question worrying investors is whether competition is going to kill the cable business. But here you have a conservative and well-respected family willing to put their money where their mouth is.”
Wall Street’s concern is that cable companies will lose customers to satellite TV and to phone rivals that are aggressively rolling out high-speed Internet service.
Last week alone, bigger-than-expected losses of basic-cable subscribers were reported by industry leaders including Cox, Comcast Corp. and Time Warner Inc.
The industry has tried to defend itself by spending heavily to upgrade its cable systems for the delivery of digital television, high-speed Internet access and telephony. Cox, a pioneer in offering phone service over cable lines, has seen fewer defections to satellite providers in part because of its aggressive “bundling” strategy.
Analysts said taking the company private would be a way for Cox to finish its system upgrade at a time when Wall Street is clamoring for higher returns from the industry’s steep investments.
In a statement Monday, Cox Enterprises Chief Executive James Cox Kennedy -- who is also chairman of Cox Communications and grandson of the founder of Cox Enterprises -- said an “increasingly competitive environment” had convinced the parent company that additional investments would be “best made through a private structure.”
Other industry executives were heartened by the news.
“It’s a great vote of confidence for our industry,” said Comcast chief Brian Roberts. “The insiders are all saying in their own ways that this is a great business.”
Roberts pointed to his own company’s stock buyback program, which was doubled last week to $2 billion. Investors had punished Comcast for its ill-fated bid this year for Walt Disney Co., which many had interpreted as evidence that the company needed to prop up its cable business by buying entertainment assets.
Comcast’s shares this year had dropped 16% before Monday but rebounded by $1.35, or 4.9%, to close at $28.75 on Nasdaq. Cablevision Systems Corp.'s stock jumped $1.87, or 11%, on Monday, to $19.34 on the New York Stock Exchange.
Cox Enterprises, which owns newspapers, radio and TV stations, proposed buying the 38% of the cable company that it doesn’t own for $32 a share. Controlled by sisters Barbara Cox Anthony and Anne Cox Chambers, Cox Enterprises holds 74% of the unit’s voting rights.
The offer represented a 16% premium over the $27.58-a-share closing price of Cox Communications’ stock. But news of the bid sent the shares, which as of Friday were down almost 20% this year, surging past the offer price, rising $5.58 to close Monday at $33.16 on the NYSE. That rise led some analysts to predict that Cox Enterprises would have to sweeten its bid to $35 to $38 a share.
To protect minority shareholders, the Cox Communications board of directors said it would form a committee of independent directors to consider the proposal. The committee will retain its own legal and financial advisors, Cox Communications said.
Citigroup Inc. and Lehman Bros. Holdings Inc. will provide as much as $10 billion in financing for the transaction, Cox Enterprises said. Analysts predicted that the company would have to sell assets, such as its 25% stake in Discovery Communications Inc., to keep its investment-grade bond rating in the event of a higher offer.
Cox Enterprises spokesman Bob Jimenez said Monday’s offer was fair “based on our assessment of today’s marketplace.... This is a chance for CEI to make a substantial additional investment in an asset we know really well.”