Case 2

Case 2- Cox Communications, Inc. (1999)

Group 1

 1) What changes are occurring in the cable industry?  Do you believe that CCI should be concerned about these changes?  Are they in a good position to benefit from these changes?  Why has CCI undertaken so many acquisitions recently?

In 1990, technological innovations of cable operators occurred. The cable industry moved from copper-based cable to high-bandwidth fiber optic cable, which offered new products like high-speed Internet access, digital cable, and so on. For the new products, cable companies also made acquisitions to increase the data capacity of their cable networks. CCI should definitely be concerned about these changes, because this is the tendency of the whole industry and will drive much of the profit growth. CCI is in a good position to benefit from these changes, since they already have a huge market share and good technology.

CCI is a major player in the cable industry, which is consolidated due to the changing technologies brought about by the Internet. The CCI corporate treasury must decide how much external financing is needed to fund a series of acquisitions within the industry that CCI has recently undertaken. From the acquisitions, CCI can increase investment opportunities and an acquisition is the best way for them to rapidly expand.

2) The Gannett acquisition is still under negotiation.  Why is CCI acquiring Gannett?  Does the Gannet acquisition make sense at $2.7 billion (assume a WACC of 9.6%)?  What is the NPV of this deal?  What is the growth rate necessary for this NPV to be positive?

As the 90’s drew to a close, CCI was trying to position themselves as large players in the cable market industry. Having acquired many other companies in a recent aggressive expansion, they saw another opportunity in Gannett. The acquisition of Gannett would bring about another 522,000 customers in a tight region that Cox was already interested in. The issue at hand however, was...