CORRECT (6/1): Mediacom Gets Buyout Bid Valued At $427 Million From CEO
June 02 2010 - 12:54PM
Dow Jones News
NEW YORK (Dow Jones)--Mediacom Communications Corp. (MCCC), the
nation's seventh-largest cable operator, said Tuesday its founder
and chief executive offered to take the company private in a bid
that values the company at about $427 million.
Rocco B. Commisso, who owns 40% of the company's equity and
controls about 87% of its voting rights through a dual-class share
structure, proposed to acquire the rest of the company's shares for
$6 apiece, a 13% premium to Friday's closing price.
The move comes as a host of concerns about the industry's future
have depressed valuations for publicly traded cable operators,
leading to go-private offers for a string of them in recent years,
including Cox Communications Inc. and Insight Communications Co.,
and two failed attempts by Cablevision Systems Inc. (CVC).
Elsewhere, Emmis Communications Corp. (EMMS) Chairman Jeffrey
Smulyan offered to take the publishing-and-broadcast conglomerate
private last week.
"A combination of low capital intensity, and therefore high free
cash flow, and access to very low rates in the debt markets has
translated into a limited need for access to public-equity markets
for U.S. cable operators," said Sanford C. Bernstein analyst Craig
Moffett. "At the same time, still low equity valuations--free cash
flow yields remain in double digits across the sector--have made
privatization a very attractive course."
Commisso, through a spokesman, declined to comment for this
story.
Shares of Mediacom recently rose 86 cents, or 16.1%, to $6.19 in
early trading Tuesday. The stock has gained almost 40% so far this
year.
Slowing growth, controlling shareholders and large debt loads as
well as concerns about heavier regulation, the rise of digital
media and new competition have weighed down stock prices for cable
operators in recent years. The nation's largest, Comcast Corp.
(CMCSA), recently agreed to buy a majority stake in General
Electric Co.'s (GE) media arm, NBC Universal--a move viewed as a
response to the economic turmoil that online video could bring to
the industry's traditional business model.
Despite these obstacles, cable companies have shown stability
throughout the economic downturn, generating rich cash flows as
cash-strapped consumers have continued to make their monthly cable
bills a financial priority. Declining capital expenditures have
raised expectations for attractive investment returns.
When factoring in Mediacom's net debt load of $3.25 billion,
Moffett estimates that Commisso's offer for the company represents
a premium of only 1.3% above its market price as of the close of
trading on Friday. Moffett said Commisso is essentially offering
$30 million above market prices in order to purchase the balance of
the company's stock.
"This appears to be a relatively small price to pay," Moffett
said.
As of the end of 2009, Commisso controlled the vast majority of
voting power at Mediacom by holding all but 212,222 of the 27.2
million super-voting Class B shares and just 3.1% of the publicly
traded Class A shares.
In a letter to shareholders, Commisso said he plans to negotiate
the transaction on "an accelerated basis," and he's not interested
in selling his stake in the company or considering an alternate
transaction. He plans to continue at the company in his current
role and leave its management team in place.
Mediacom, which has about 1.2 million video subscribers located
largely in Iowa and Illinois, said it has formed a committee led by
independent directors Thomas V. Reifenheiser and Natale S.
Ricciardi, to consider the proposal on behalf of public
shareholders. The committee will hire independent financial
advisers and legal counsel to help in the decision-making
process.
The company, founded in 1995, said the proposed transaction will
neither change its existing debt arrangements, nor is it expected
to affect its daily operations.
In May, Mediacom said its first-quarter earnings dropped 62%
while revenue climbed 2%. The number of customers it serves fell
36,000 from a year earlier to 1.35 million.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
nat.worden@dowjones.com
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