Cox Bids $7.9B for Itself

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In an aggressive move, Cox Communications Inc.'s parent company proposed Monday to buy back the 38% of cable company's stock that it doesn't own and take it private.

Cox Enterprises Inc. would purchase the stock at $32 a share, or a total of $7.9 billion. That represents a 14% premium on the stock's previous 10-day average closing price.

The move signals how disgruntled cable operators like Cox have become over their undervalued stocks. Cable companies' cash flow is up but stock values are generally down. That's in spite of  growing businesses from new data and voice products and upgraded video.

In an investor advisory, Alan Bezoza, SVP, Broadband Cable Research, for investment bank Friedman, Billings, Ramsey (FBR), says that rather than the $32 per share Cox Enterprises is offering, the price should be more like $38. "The offer price represents an 8.7x multiple to our 2005 estimated EBITDA [earnings before interest, taxes, debt and amortization]," said Bezoza, "but we continue to believe that shares are worth $38, or 10x, and think that investors will demand a higher price."
 As a private operation, Cox wouldn't need to be preoccupied by Wall Street's quarter-to-quarter focus. "Being private should give the company more flexibility competitively, but that doesn't necessarily mean it will run its business any differently than it has," Bank of America media analyst Doug Shapiro said in a note.  

 The move could help grow Cox's competitive position. "As a private company, the operator will be able to execute its business strategy in stealth mode from DBS and telco competitors," FBR said.

Another major implication, analysts said, is that the buyback would make Cox an unlikely player in future major acquisitions. The company had already said it was not a player for all of Adelphia, the biggest prize on the cable selling block right now. Monday's buyback proposal reaffirms that.

Cox Enterprises currently has a 62% ownership stake in Cox Communications and a 73% voting interest. It would likely take months for a buyback to be completed.

Cox says the transaction would be implemented through a cash tender offer for the publicly held shares and a cash merger at the same price per share as the tender offer. In addition to the $7.9 billion proposed for the buy back, Cox estimates another $2.1 billion will be needed to refinance existing debt and other corporate purposes, the company said in a statement.