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Cox clan offers $7.9 billion to buy back cable unit

By Chitra Somayaji and Edvard Pettersson
Bloomberg News

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Kennedy's Cox Enterprises said Cox Communications shareholders will get $32 in cash for each share, a 16 percent premium over Friday's closing price.

Shares of Cox Communications rose above the offer price, suggesting investors think the Cox family will have to increase its bid. The stock this year had fallen 20 percent through Friday amid investor concern that cable-TV operators, including Cox and Comcast, may lose subscribers to satellite-TV companies and phone carriers.

"It's likely that they [the Cox family] have to come back with a sweetened offer," said Craig Moffett, an analyst with Sanford C. Bernstein & Co., who rates Cox "outperform" and doesn't own the shares. The final offer may likely be between $32 and $37 a share, he said.

Barbara Cox Anthony and Anne Cox Chambers, ranked 23rd on Forbes magazine's list of the world's richest people with a net worth of $11.2 billion each, control Cox Enterprises. They're the mother and aunt, respectively, of Kennedy, 56. He's the grandson of the company's founder and is chairman of Cox Communications.

Cox Enterprises owns 62 percent of the cable operator's Class A shares and 74 percent of its voting rights, according to a Securities and Exchange Commission filing.

Cox's offer values the cable company at $3,900 to $4,000 a subscriber, Moffett said. Subscriber valuations for the cable industry peaked in 1999, when AT&T paid $6,000 for each MediaOne Group subscriber, he said. Comcast in November 2002 paid $4,500 to buy those customers from AT&T.

Cox Communications shares rose 20 percent, or $5.58, to $33.16 yesterday.

The proposed transaction would be the second time the Cox family has bought out shareholders in its cable business. Cox Broadcasting, a unit that owned the cable systems, radio and TV stations, became a publicly held company in 1964, according to the Cox Enterprises Web site. That business was bought out by Cox family members 21 years later.

Kennedy, who became chief executive of Cox Enterprises in 1988, sold shares in the cable business again through an initial public offering in 1995. Kennedy is also chairman of Cox Radio, which he took public the next year.

Cox family members think they can manage the company more efficiently and "wouldn't need to telegraph strategy to shareholders" as a private company, said Todd Mitchell, an analyst with New York-based Blaylock & Partners. He rates Cox "hold" and doesn't own the shares.
 
Cox Enterprises was founded by James Cox, the former Ohio governor and presidential candidate, when he bought the Dayton Evening News of Ohio in 1898.

His son, James Jr., bought radio and television stations. In the 1960s, Cox became one of the first companies to invest in cable TV, buying systems in Pennsylvania, California and Oregon, according to Hoover's.

Kennedy has since expanded his family's holdings to include a majority stake in AutoTrader.com, which lists vehicles for sale on the Internet, through the Manheim Auctions unit. Manheim is the world's largest wholesale-auto-auction company.

The Cox Newspapers unit publishes 17 daily and 25 nondaily newspapers, including The Atlanta-Journal Constitution. Cox Television owns 15 TV stations and three advertising-sales firms.

Microsoft Chairman Bill Gates owns 5.7 percent of Cox Communications' Class A shares through his investment company and the Bill & Melinda Gates Foundation.