Kennedy: Cox's cable plan takes it out of acquisition market
Copyright 2004 The Atlanta Journal-Constitution
The Atlanta Journal-Constitution
August 6, 2004 Friday Home Edition
Cox Enterprises Inc.'s plan to take Cox Communications private likely will tie up the company's ability to make other major acquisitions for the next two to three years, said Jim Kennedy, CEI's chairman and chief executive officer.
"This is a big chunk," Kennedy said. "Clearly, there's only so much money. If we are successful with this, this will be the focus for the next couple of years."
Cox Enterprises will be taking on $7.9 billion in debt to buy the publicly traded shares of Cox Communications for $32 a share.
Some shareholders already have balked: CEI reported Cox Communications has been named in nine shareholder lawsuits since the deal was announced Monday.
CEI already owns 62 percent of Cox Communications. It also owns other media operations, including The Atlanta Journal-Constitution.
With its move to take the cable company private, Kennedy said Cox Enterprises won't be going after financially troubled cable company Adelphia Communications. The deal would cement Cox Communications' place as a midsize cable provider, which gives it less leverage than larger peers when buying from programmers and equipment makers.
"The bigger you are, the better your negotiating power is," Kennedy acknowledged, but added that Cox already is well-positioned. "Cox Communications has been a leader in this field. We are still treated as a leader with 6.5 million subscribers."
The overriding reason Cox Enterprises decided to take the cable company private is because its share price has been undervalued, Kennedy said in a telephone interview. Cable industry stocks have been depressed, with analysts and investors concerned about growing competition from satellite television providers and telephone companies.
"It's pretty self-evident the stock hasn't moved any significant amount for a couple of years," Kennedy said. "It's disappointing when the public market doesn't reflect the performance of the company."
Plus, there are advantages to being private. It gives family-run Cox Enterprises more control over cable operations. And, Kennedy noted, public companies have to spend millions on accountants and lawyers to help abide by new federal regulations for publicly traded companies.
"I like being private better," Kennedy said, noting that it allows a company to take a long view, rather than focusing on quarterly results. He said Cox Enterprises likes to say it operates with the responsibility of a public company and the flexibility and speed of a private company.
Kennedy said Cox Enterprises would do better to invest in a cable company it knows and trusts than in Adelphia, which filed for bankruptcy protection in June 2002. "Adelphia is so messed up, it's hard to say what it's worth," he said.
Cox Communications, by contrast, offered "an opportunity for us to invest in a company we believe in and an industry we believe in," Kennedy said.
Not all Cox Communications' minority shareholders are in favor of the deal. Cox Enterprises disclosed the lawsuits Thursday. Two were filed in Fulton County, the other seven in Delaware.
The lawsuits allege, among other things, that Cox Communications would breach its fiduciary responsibility to shareholders if it went forward with the public-to-private plan.
"We regret that these shareholders felt it appropriate to file a lawsuit regarding the proposal, but our plans are unchanged," said Bob Jimenez, a spokesman for Cox Enterprises. "In addition, we believe we have legitimate defenses against these actions."
'Not any slam dunk'
The idea of taking Cox Communications private has been on Kennedy's mind for the last couple of years as the company's stock price languished. He said while considering deals he always asked: "Would it be better to buy that or buy ourselves?"
Kennedy and his top staff made a presentation to the directors of Cox Enterprises on July 27 at the regularly scheduled board meeting. He said he had not discussed the proposal with the major owners of Cox Enterprises, his mother, Barbara Cox Anthony, and his aunt, Anne Cox Chambers, before the meeting.
At the meeting, Kennedy told directors it was a big step and that he wanted them to take several days to think about the deal. The proposal was unanimously approved Sunday in a telephone conference call.
Now, the three independent directors of Cox Communications' seven-member board will form a committee to review how the deal affects minority shareholders.
The committee includes former Atlanta Mayor Andrew Young; Janet M. Clarke, president of Clarke Littlefield LLC; and Rodney Schrock, former president and chief executive officer of technology firm Panasas Inc. The committee will hire its own lawyers and its own bankers.
"This is not any slam dunk," Kennedy said.
Asked if Cox Enterprises had plans to take its other public company, Cox Radio, private, Kennedy said the company is "focused solely on Cox Communications."
At least for the short term, Cox Enterprises will be fully leveraged, but Kennedy doesn't believe it will be over-leveraged.
"We have a history of taking a big bite and digesting it, and then taking another big bite and digesting it," Kennedy said.
Cox Enterprises also has a history of taking its broadcasting and cable arm private and then public. Cox Broadcasting Corp. (which later became Cox Communications) had been public from 1964 to 1985, when it went private by merging into Cox Enterprises.
Cox Communications then went public again in 1995 to help finance the purchase of Times Mirror's cable systems.
When asked if there was a chance the company would take Cox Communications public again in the future, Kennedy said: "Not under my watch."