Buyout Trumped Cox Bid for Adelphia Assets

Cox Communications Inc. shed some additional light on the negotiations that led up to its accepting an $8.5 billion buyout offer from parent Cox Enterprises Inc. in a securities filing last week, noting that it also considered acquiring some Adelphia Communications Corp. assets.

Cox Communications agreed on Oct. 19 to accept an amended buyout offer from parent Cox Enterprises to buy the remaining 38% of Cox stock CEI didn’t own for $34.75 per share.

The new price was considerably higher than CEI’s August proposal to buy the shares for $32 each, a 16% premium to their trading price at the time.


Cox decided to look into its investment options, including buying back 50% or 100% of CCI shares late in the spring of 2004. In June, in a meeting attended by top CEI and CCI executives — including CEI chairman and CEO James Kennedy and CCI president and CEO Jim Robbins — CCI vice president of mergers and acquisitions Robert Rendell made a presentation concerning those investment options, including an Adelphia purchase.

“Mr. Rendell’s analysis compared a Cox stock buyback of approximately half the shares not beneficially owned by Enterprises and all of such shares, with the acquisition of Adelphia cable systems comprised of between 1.1 million and 2.2 million subscribers, respectively, using estimated EBITDA, imputed prices per subscriber and leverage required to complete each potential investment,” the document said.

Apparently Cox Enterprises decided the better investment was in Cox Communications stock.

After CEI made its initial proposal for the buyout, and Cox Communications appointed a special committee of independent directors to evaluate that proposal, the going wasn’t so easy.

Hampering the CEI offer: CCI shares were appreciating rapidly, rising $5.58 on the day of the announcement, to $33.16, and then to $33.47 in subsequent weeks.

The special committee hired Goldman Sachs & Co. on Aug. 13 to determine a fair price for CCI, comparing the MSO with its peers. Goldman estimated CCI was worth $33.50 to $46.35 per share.

That valuation included $3.166 billion for CCI’s 24.9% interest in Discovery Communications and $1.166 billion for Cox Business Services.

CEI at the time was holding fast to a $32 offer, while the special committee said it wouldn’t accept anything less than $37.

Later, CEI upped its offer to $33.50 (the low end of the Goldman valuation) and was rebuffed again.

Then came a bit of a cat-and-mouse game in several subsequent meetings, with CEI inching the price up and getting rejected.

When CEI’s latest “best and final” offer of $34.50 was again rejected by the committee, Kennedy said the parent company was ready to scuttle the deal.


That’s when the special committee went into crisis mode, authorizing committee chairman Janet Clarke, a CCI board member and president of marketing technologies consulting firm Clarke Littlefield LLC, to negotiate the best price possible.

Clarke lowered her demands to $35.25 per share at that meeting, rejected by CEI as too high.

After that meeting broke up, and it became apparent that CEI would walk away, Clarke learned Kennedy had returned to his office and arranged a meeting.

At that meeting, Kennedy said he would consider raising the price to $34.75 — which Clarke accepted, as long as CEI agreed to settle shareholder litigation against CCI to avoid any potential disruptions or distractions.

Four days later, after lawyers were consulted, Cox Enterprises and Cox Communications agreed to the deal.