Gannett Co. of Arlington got out of the cable television business yesterday, announcing an agreement to sell all of its cable properties to Cox Communications Inc. of Atlanta for $2.7 billion in cash.
The purchase of Gannett's cable systems and three other acquisitions announced in the last few months will make Cox the nation's fifth-largest cable operator, serving 6 million households in 18 states, including Virginia.
Cox and Gannett are both multimedia companies, with newspapers, broadcasting and cable operations, but they are pursuing different growth strategies. Cox has been investing heavily in cable and Internet ventures for some time, while Gannett acquired its first and only cable operations just 3 1/2 years ago.
Gannett President Douglas H. McCorkindale said the company didn't make a strategic decision to get out of the cable business but decided to sell because "someone just offered us a lot of money." The price of cable franchises has been rising rapidly recently, and Gannett stands to get one of the highest per household prices ever paid--$4,500 to $5,100, depending on how the value is calculated--for its 525,000 subscribers.
"It makes sense to unload cable at very, very attractive prices," Steven Barlow, a media analyst at Credit Suisse First Boston, told Reuters. "My guess is you had two or three or four bidders, and that is the right way to run an auction. It creates some excitement to get people to pay up."
McCorkindale said the sale will have a "positive" effect on Gannett's earnings, but the company released no specifics of the impact of the transaction and did not say what it plans to do with the $2.7 billion.
Gannett acquired its cable operations in 1995 when it bought Multimedia Inc., whose primary businesses were several daily newspapers and television stations.
Cox earlier this year began what it describes as the first of "four rapid-fire acquisitions" and what others in the cable industry call a buying spree. By the time the transactions are completed early next year, Cox will add 2 million new customers--increasing its cable coverage by 50 percent.
"We believe that 6 million customers is a formidable size in today's environment," said James O. Robbins, president and chief executive of Cox. "Gannett's cable properties are a natural fit with our growth strategy."
The Gannett cable companies are in Kansas and Oklahoma--where Cox already operates--and North Carolina. The Kansas and Oklahoma systems have already been upgraded with new equipment that will allow them to carry telephone calls, data communications and Internet traffic.
Cox has been one of the most aggressive cable operators in offering other products including both local and long-distance phone service, Internet access over its cable system and high-speed communications services to businesses. Cox is also an investor in Sprint PCS Group, the mobile phone company, and Excite At Home Corp., a cable Internet service, and owns part of several cable networks, including Bethesda-based Discovery Communications Inc.
Cox's three other recent cable deals--all still to be completed--are the purchase of 495,000 customers from AT&T Corp. in a stock swap valued at $2.8 billion, 883,000 subscribers from TCA Cable TV Inc. for $4 billion and 264,000 households from Media General Inc. for $1.4 billion.
Cox will pay $2.7 billion for the Gannett cable operations but said it will pick up tax benefits worth $350 million in the transaction, which will reduce its effective cost to $2.35 billion.
The company also owns a big used-car auction company and is investing in Internet car-buying ventures.
In New York Stock Exchange trading yesterday, Gannett stock closed at $76.37 1/2, up $1.87 1/2. Cox shares closed at $38, down 81 1/4 cents.
COMPANIES IN PROFILE
Business: Owns, operates cable television systems and has interests in TV programming networks including Discovery Communications; offers local and long-distance telephone service.
1998 sales: $1.72 billion
1998 net income: $1.27 billion*
Yesterday's closing stock price: $38, down 81 1/4 cents
Ticker symbol: COX on the NYSE
Web address: www.cox.com
Business: Nationwide news and information company that publishes 74 daily newspapers, including USA Today, and operates TV stations in major U.S. markets.
1998 sales: $5.12 billion
1998 net income: $999.9 million
Yesterday's closing stock price: $76.37 1/2, up $1.87 1/2
Ticker symbol: GCI on the NYSE
Web address: www.gannett.com
*Includes $2.5 billion investment gain
SOURCES: Hoover's, Bloomberg News