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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