Mediacom Communications stock soared Tuesday after its chairman and CEO made a $6 per share offer to take the mid-sized market MSO private, indicating that he may have to sweeten the pot.
Mediacom founder, chairman and CEO Rocco Commisso on Tuesday offered to purchase the remaining stock he doesn't already own in the company for $6 per share, which at the time represented a 13% premium to its close of $5.33 each on May 28. But the stock has climbed steadily on the news - it went as high as $6.47 per share in early trading Tuesday, a 21.4% ($1.14 per share) increase over its May 28 close. The stock ended the day at $6.27, up 94 cents per share or 17.6%.
The notion of taking Mediacom private is not new - analysts have been expecting it for years as the stock is lightly traded and has a dominant shareowner in Commisso. Commisso, who founded Mediacom in 1995 and took it public in 2000, owns a 40% economic stake in the company and 87% of its voting shares. While the $6 per share offer does represent a 13% premium to the May 28 close, it values the company at about 6.6 times 2010 cash flow.
Some analysts saw the offer as too low and expect Commisso to modify it as the process continues. Mediacom said it has formed a special committee of independent directors to evaluate the proposal.
In a research note, Pivotal Research Group principal and media & communications analyst Jeff Wlodarczak wrote that Mediacom could be worth as much as $10 per share, although he did not expect Commisso to go that high.
"We believe at a bare minimum the bid will have to rise to $8 and it is unclear whether Commisso would be willing to move to this level and if minority shareholders would (or should) accept a bid at these levels," Wlodarczak wrote. "We do not see competing bids emerging."
Sanford Bernstein cable and satellite analyst Craig Moffett also was not surprised by Commisso's offer, but added that it would likely have to be raised.
Moffett estimated that Commisso would spend about $250 million to buy the shares he doesn't already own.
"...So in effect he is offering to pony up about $30 million above market prices to own the balance of the company's stock," Moffett wrote. "This appears to be a relatively small price to pay."
If successful, Mediacom would be the third MSO since Cox Communications in 2004 and Insight Communications in 2005 to go private. Cablevision Systems attempted the privatization route three times in 2005, 2006 and 2007, but was rejected by shareholders on each try.
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