Privately held Cox Enterprises Inc. announced a $7.9 billion bid yesterday for the 38 percent of its cable television subsidiary that it does not already own.
Atlanta-based Cox Communications Inc. is one of the nation's largest cable companies with approximately 6.3 million subscribers. It also provides high-speed Internet service to more than 2 million homes and telephone service to 1.1 million homes.
Family-controlled Cox Enterprises is making the $32-per-share bid at time when cable stocks, including Cox's, have been hard hit by concerns about increased competition from telephone and satellite companies. In some cases, satellite and telephone companies have teamed up to offer a bundle of telephone, high-speed Internet access and television service to compete with the same products offered by cable.
Investors took Cox Enterprises' offer as a vote of confidence in the cable business and sent the industry's stock indexes sharply higher. Shares of Cox Communications jumped $5.58, or more than 20 percent, to close at $33.16 on the announcement -- an indication that investors believe the company will have to raise its bid to close the deal.
Cox Enterprises chief executive James C. Kennedy said he wanted to take the cable subsidiary private to avoid the market-related pressure of managing a publicly traded company.
"The competitive demands of the cable industry when balanced against the need for a public company to be vigilant with respect to short-term results have convinced us that private ownership of this business is desirable and will assist (Cox Communications) in attaining its business objectives," Kennedy wrote in a letter to board members. The board approved the bid for the publicly held shares of Cox Communications during a special meeting on Sunday.
Kennedy is the grandson of the Cox Enterprises founder and the son of Barbara Cox Anthony, one of two sisters who control the company.
The move signals that Cox is concerned about increased competition and wants to make long-term investments in its cable division that won't please some short-term-oriented investors, said Alan Bezoza, an analyst with Friedman, Billings, Ramsey Group Inc.
"It says values are too low and also that they believe it is best to take the company private given Wall Street's quarter-to-quarter focus," Bezoza said.
In addition to Cox Communications, Cox Enterprises owns television stations and newspapers including the Atlanta Journal-Constitution and the Palm Beach Post. It also has a large stake in the publicly traded Cox Radio Inc. network.
Cox executives declined to comment on any specific plans for the cable business. In 2002, Cox lost a bidding war for AT&T Corp.'s cable unit to Comcast Corp. Bezoza said the decision to take the cable division private may also be a sign that Cox will not enter the bidding for troubled Adelphia Communications Corp., which was put on the block after members of the founding Rigas family were charged with stealing millions of dollars from the company.
In response to yesterday's announcement, Standard & Poor's Corp. warned that it would lower Cox Enterprises' credit rating if it follows through on the deal.
Cox Enterprises said it had secured $10 billion in financing through Citigroup Global Markets Inc. and Lehman Brothers Inc. In his letter to board members, Kennedy said that the $2.1 billion in excess of its $7.9 billion bid for the cable subsidiary would be used to refinance debt at the parent company and for working capital.