Mediacom Buys Out Insider at Low Price
Mediacom Communications buys out early investor, board member William S. Morris III.
By Robert Marich -- Broadcasting & Cable, 9/8/2008 6:01:00 AM
Cable-system operator Mediacom Communications streamlined its capital structure Monday by agreeing to buy out an early investor and board member William S. Morris III at a favorable price given that it is structured as tax-free.
The transaction, which was nailed down with a definitive agreement, is a tax-free split-off. Morris agreed to sell back to the company 28.3 million class-A shares in exchange for 25,000 basic subscribers, which Mediacom said are nonstrategic, and $110 million in cash.
Based in Middletown, N.Y., Mediacom currently has 1.325 million basic subscribers.
Once the transaction is complete, Morris will exit the board, where he controls two seats.
Mediacom has two groupings of stock -- class A, which is widely held, and supervoting class B held by chairman and CEO Rocco Commisso.
“This exchange agreement represents a unique opportunity to deliver value to our shareholders without compromising the solid financial position of our company,” Commisso said in a statement. “At an implied valuation of about $6.50 per share, we are repurchasing 30% of our outstanding shares at a meaningful discount to recent trading levels of our stock.”
Morris benefits from the tax-free structure of the deal.
Commisso added, “Moreover, since part of the consideration consists of nonstrategic cable systems, we will still have available about $700 million of unused lines of credit immediately after closing and the company’s pro-forma debt leverage is expected to be lower than in the fourth quarter of 2007. Lastly, through this tax-efficient transaction, the company’s sizable net operating loss carry-forward will largely remain intact.”
After the transaction, Mediacom’s total class-A and class-B outstanding stock will amount to around 66.3 million shares.
Lehman Bros. provided a fairness opinion, since the purchase is from an insider. Banc of America Securities acted as financial advisor and the law firm of Baker Botts acted as legal advisor to Mediacom.
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