Cox Communications, Inc.
Applied Corporate Finance
Prof. José Neves Adelino Prof. Carla Peixoto Prof. André Fernando

Group 9 Ana Rita Miranda 472 Carolina Oliveira 423 Henrique Queiroz 453 João Santos 438 Tiago Pinho 403

Applied Corporate Finance

Executive Summary
By mid-1999, Cox Communications, majority-owned by the Cox family, was about to take its first step into a planned $7Bn acquisition spree, which would let it stand as a top-tier communication sector firm in the coming years. In a rapidly consolidating industry, where competitive advantages derived mostly from scale, competition for acquisitions was fierce, pushing valuations higher often to thresholds which would arguably be justifiable by the target’s intrinsic
However, we are asked to evaluate a new opportunity which has emerged: the acquisition via auction of Gannett Inc’s cable properties, which would add half a million subscribers, and fit in with CCI’s local economies of scale strategy. We will begin by evaluating whether Gannett’s proposed price is too high, at $2,7bn. Regardless of our assessment, we must also take into consideration the opportunity costs of not acquiring Gannett. Assuming we go ahead with the Gannett acquisition, we are asked to evaluate three alternative capital structures for financing this acquisition: issuing further debt, further equity, or a combination of debt, equity and the hybrid PRIDES security. Beyond the usual merits/demerits of each form of financing, there are key restrictions which make CCI’s choice atypical. The Cox Family must maintain their supermajority control of CCI, Debt/EBITDA must not surpass 5, and CCI must preserve the flexibility to pursue future growth opportunities. Thus, these restrictions will act as criteria which determine which option to finance the Gannett acquisition Mr. Clement should recommend.

Group 9 – Cox Communications, Inc.

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Applied Corporate Finance

2. Gannett’s Acquisition
Gannett Co, a very well diversified company with 75 newspapers and 21 television stations, has recently put its cable properties for sale. Gannett was induced by the