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
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Therefore, with the current financing mechanisms at Cox’s disposal, the combination of FELINE Income PRIDES, equity, and debt stands as the single funding solution able to, simultaneously minimize equity dilution while avoiding the deterioration of Cox’s creditworthiness and future financing capability.
Group 9 – Cox Communications, Inc.
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Applied Corporate Finance
1. Problem Statement
In 1999, Cox Communications Inc (CCI) is a spin-off of the larger newspaper company Cox Enterprise Inc. which operates in the cable television business in 9 US states, and 2/3 of which is owned by the Cox family through CEI. The industry was characterized by significant economies of scale at local levels (very high fixed costs and very low variable costs) and national levels, given increased bargaining power. These factors led to very strong industry consolidation activity at the turn of the century, with 70% of the market predicted to be held by 5 top players in four years. This made growth, in this case through acquisitions, an absolute imperative for a company which wished to remain competitive and profitable. In this industry, one could not afford to become a second-tier
The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout. So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000. To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.
Comcast holds about 20% of the market, Direct TV holds about 20%, and DISH holds about 14%, and so does Time-Warner Cable. Customer satisfaction with Pay TV providers is dropping across all competitors (The ACSI) which suggest low customer loyalty held in check by limited choices in many areas, or an inability for the consumer to see much difference between companies. Competitors have huge infrastructure investments that many not be salvageable causing a high barrier to exit. Also, the end product, TV, is largely the same between competitors. Rivalry is very high as no one holds a huge competitive advantage. It is likely very difficult to make a sustained profit in this market over the long term, and expanding to new markets may be the best choice to move
Our reconciliation for this undervaluation is that the market is already pricing in a takeover. Some evidence of this can be demonstrated by the 1.0 beta of paramount. If we look at the 1992 Q1 to August 30 1993 returns of S&P500 and PCI, PCI is +30.6% and S&P500 is +14.6%, which implies an approximate
Effective February 7, 2013, SeaBright Insurance Company (“Seabright”), a Seattle-based insurance company specializing in workers compensation, entered into run-off. In 2012, Enstar Group Limited (“Enstar”), a run-off specialist, purchased SeaBright. SeaBright continues to manage existing claims but no longer writes new or renewal business, which means that premium activity has slowed down. In 2015, a major change occurred when all of SeaBright’s net liabilities (i.e. loss reserves associated with its prior workers comp business) were shifted to an Enstar affiliate, Clarendon National Insurance Company, through a reinsurance agreement. Circumstances that led the company to run-off: SeaBright was placed into run-off driven by weakened underwriting performance associated with reserve strengthening actions for accident years 2007 through 2009, primarily related to increasing medical cost trends. Additionally, SeaBright was facing marketplace challenges associated with its geographic and coverage lines expansion. Seabright has had to deal with significant pressure from its workers comp book developing adversely year-over-year and having to liquidate investments to satisfy claims and expenses. The reinsurance contract with Clarendon did provide major relief but SeaBright still remains a going concern and without premiums coming in and asset base rapidly shrinking, its solvency status as an insurance company remains questionable. The key now is to track the level of credit risk
In April 2003, Daniel Rowe, president of Prestige Telephone Company, was preparing for a meeting with Susan Bradley, Manager of Prestige Data Services, a company subsidiary. Partial deregulation and an agreement with the state Public Service Commission had permitted Prestige Telephone to establish a computer data service subsidiary to perform data processing for the telephone company and to sell computer service to other companies and organizations. Mr. Rowe had told the commission in 1999 that a profitable computer services subsidiary would reduce pressure for telephone rate increases. However, by the end of 2002 the subsidiary had yet to experience a profitable month. Ms. Bradley felt only more
Paulson E. (2001). “Inside Cisco: The real story of sustained M&A growth”, John Wiley & Sons, Inc.
United Way, formerly known as United Way of America, and also linked to United Way Worldwide).
1. What accounting approach has AOL used in the past that it is now changing (related to the $385 million)?
According to Stafford and Heilprin, “American Cable Communications (ACC) was one of the largest cable operators in the United States (AirThread Case).” ACC serviced roughly 24.1 million video subscribers, 13.2 million high-speed internet subscribers, and 4.6 million landline telephony subscribers. In 2007, ACC saw revenues of $30.9 billion and had net income equaling $2.6 billion. In order to adapt to the changes in the industry, ACC started aggressively acquiring smaller companies, which resulted in huge customer growth and the development of, “a strong corporate finance team with significant acumen in identifying, valuing, structuring, and executing corporate control transaction (AirThread Case).” That being said, ACC has set its sights on yet another company--AirThread Connections--with the expectation of further revenue growth and customer acquisition and retention.
1. Assess Interco's financial performance. Why is the company a target of a hostile takeover attempt?
Have you ever wondered how your phone company started out? Or the new innovations it has brought about? And maybe even how the business is run? Well, today I’m going to talk about AT&T’s history, the products it sells, the employee jobs and U-verse.
Tait Communications ltd is a global company with some millions of people around the globe depending on tait products to keep their lights on cites flowing and communities safe. The core business operation of tait is to manufacture radio equipment for emergency services departments. Other wing of tait is to provide communication solutions to its clients. The company clients are spread across the globe but its key clients are from North America, United Kingdom, South Africa, Australia and New Zealand. It has more than 40 years of excellence track record in engineering.
We will further discuss what led to this situation, and give a recommendation on the changes that should have been made prior to the divestiture in 1984.
It was showed in the exhibit 8a, 8b, 8c and 8d, there would be an increase in net income if Cox purchased Gannett by issuing equity of the combination of debt and equity but not only by issuing debt. So we can calculate the cash flow for Cox if it purchases Gannett by issuing equity.
Headquartered in Texas, Teletech Corporation operates under two main business segments: the Telecommunications Services segment, providing various telephone services to business and residential customers and the Products & Systems segment, which manufactures computing and telecommunications equipment. In late 2005, the Securities & Exchange Commission revealed that billionaire Victor Yossarian acquired a 10% stake in Teletech and demanded two seats on the board of directors. He felt that the firm was misusing their resources and not earning a sufficient return. He stated that Teletech should sell off its Product & Systems segment and focus on creating value for the company’s shareholders. A detailed analysis will reveal