Cox Communications case
Cox Communications
Applied Corporate Finance
Contents
Executive Summary
Background
Gannett and other acquisitions: possibilities and constraints of financing
Feline PRIDES securities: benefits and costs for Cox Communications
Valuation of Gannett’s acquisition
Conclusions and recommendations
Appendix
Executive Summary
The main purpose of this report is to evaluate an appropriate financing strategy for Cox Communications.
Cox Communications is one of the largest players in the cable industry. In 1999, the firm expected to make several acquisitions over the following years, spending around 7$-8$ billion in the process. Given this possibility, the firm had to find out its external financing needs and the securities it should issue to fund these acquisitions. Cox Communications could choose between plain vanilla equity, debt, asset sales, and equity-linked securities, and must make this decision facing several constraints from the market and from the firm itself. The financing strategy had to address some corporate objectives, which included maintaining financial flexibility for future acquisitions, keeping the firm’s investment-grade bond rating and preserving the current shareholder structure.
We begin by analyzing the possibilities of financing the firm has available and the constraints and disadvantages that each of those options imposed on Cox Communications. This will allow us to understand if the acquisitions make sense from a financial and strategic points of view. We used the adjusted present value method to value Gannett’s acquisition and to get a more robust conclusion.
After a careful analysis, we recommend Cox Communications to finance the acquisition of Gannet with the feline PRIDES securities. Even though this option doesn’t satisfy all the constraints of the firm, it is still the one that is closer to fulfilling the goals of both the Cox family and the board of
Applied Corporate Finance
Contents
Executive Summary
Background
Gannett and other acquisitions: possibilities and constraints of financing
Feline PRIDES securities: benefits and costs for Cox Communications
Valuation of Gannett’s acquisition
Conclusions and recommendations
Appendix
Executive Summary
The main purpose of this report is to evaluate an appropriate financing strategy for Cox Communications.
Cox Communications is one of the largest players in the cable industry. In 1999, the firm expected to make several acquisitions over the following years, spending around 7$-8$ billion in the process. Given this possibility, the firm had to find out its external financing needs and the securities it should issue to fund these acquisitions. Cox Communications could choose between plain vanilla equity, debt, asset sales, and equity-linked securities, and must make this decision facing several constraints from the market and from the firm itself. The financing strategy had to address some corporate objectives, which included maintaining financial flexibility for future acquisitions, keeping the firm’s investment-grade bond rating and preserving the current shareholder structure.
We begin by analyzing the possibilities of financing the firm has available and the constraints and disadvantages that each of those options imposed on Cox Communications. This will allow us to understand if the acquisitions make sense from a financial and strategic points of view. We used the adjusted present value method to value Gannett’s acquisition and to get a more robust conclusion.
After a careful analysis, we recommend Cox Communications to finance the acquisition of Gannet with the feline PRIDES securities. Even though this option doesn’t satisfy all the constraints of the firm, it is still the one that is closer to fulfilling the goals of both the Cox family and the board of