This Time, Cox Reels In A Big FishDavid Greising
Returning to his Atlanta home from a 100-mile Memorial Day bike ride, James Cox Kennedy got the call he had been waiting for from Times Mirror Co. Chairman Robert F. Erburu. The good news: The company Kennedy heads, Cox Enterprises Inc., had not out-and-out lost the bidding for Times Mirror's cable operations. But rival bidder Continental Cablevision was still in the race. Erburu put it bluntly: "It's a dead heat."
Not for long. By June 1, Kennedy had knocked Continental out of the takeover by raising the cash portion of his bid by $64 million, to $1.364 billion, and allowing Times Mirror a 20% stake in the new Cox Cable Communications. The $2.3 billion package will give Cox control of a joint venture that will be the nation's No.3 cable operator. A related venture, run by Times Mirror, will produce programming.
The consequences of the deal will be far-reaching. It nearly doubles the size of Cox's cable operation and returns much of the company's empire to public ownership. For the cable industry, it may usher in more of the megadeals prevalent before regulatory changes seemed to dampen growth prospects.
The biggest shock for stately Cox will be its return to public ownership. The company's board is dominated by the daughters of Cox founder James M. Cox, an erstwhile Presidential candidate who shared the 1920 ticket with a young Franklin Delano Roosevelt. Barbara Cox Anthony and Anne Cox Chambers have little appetite for public ownership and took the company private in 1985--after first considering a sale of everything but Cox's newspapers to General Electric Co. Before agreeing to the Times Mirror deal, "we had to think twice about the hassles of being a public company," Kennedy says. But the other publishing family in the deal, the Chandlers of Los Angeles, nixed a cash buyout because of its tax consequences.
The question now: Did Kennedy pay too dear? Analysts figure he anted up a punishing 11 times estimated 1994 cash flow for the Times Mirror properties. "What they basically did in constructing this bid was take every risk they could," says one investment banker.
HIGH FIBER. Still, the deal gives Cox considerable clout in the fast-consolidating cable industry. According to consultant Paul Kagan Associates, the new Cox Cable will have one of the industry's most efficient systems, with more than 50,500 subscribers in each of its 39 systems, 72% of them in the top 50 ad markets. Another plus: An impressive 78% of its system will be delivered over fiber-optic cable by yearend 1994. And the venture has the potential to dominate fast-growing Sunbelt markets from Phoenix to Los Angeles. "These are the best properties you're ever going to see on the market," says New York cable broker John Waller.
Kennedy, however, feels his work is far from finished. To provide programming, Cox plans to spend $100 million and Times Mirror $200 million over five years on a venture that will offer the new Outdoor Life Channel and other services. And Kennedy hopes to add another 500,000 cable customers through acquisitions, industry sources say. He also wants to ink a telephone-company alliance--though some outsiders wonder why. "They have the capacity and the financial wherewithal to go it alone," figures Brian M. Deevy, president of Daniels & Associates in Denver. Alone, that is, with thousands of new shareholders.