Case Study: Cox Enterprises Takes Cox Communications Private In an effort to take the firm private, Cox Enterprises announced a proposal to buy the remaining 38% of Cox Communications' shares not currently owned for $32 per share. Valued at $7.9 billion (including $3 billion in assumed debt), the deal represented a 16% premium to Cox Communication's share price at that time. Cox Communications is the third largest provider of cable TV, telecommunications, and wireless services in the U.S, serving more than 6.2 million customers. Historically, the firm's cash flow has been steady and substantial. Cox Communications would become a wholly-owned subsidiary of Cox Enterprises and would continue to operate as an autonomous business. Cox Communications' Board of Directors formed a special committee of independent directors to consider the proposal. Citigroup Global Markets and Lehman Brothers Inc. committed $10 billion to the deal. Cox Enterprises would use $7.9 billion for the tender offer, with the remaining $2.1 billion used for refinancing existing debt and to satisfy working capital requirements. Cable service firms have faced intensified competitive pressures from satellite service providers DirecTV Group and EchoStar communications. Moreover, telephone companies continue to attack cable's high-speed Internet service by cutting prices on high-speed Internet service over phone lines. Cable firms have responded by offering a broader range of advanced services like video-on-demand and phone service. Since 2000, the cable industry has invested more than $80 billion to upgrade their systems to provide such services, causing profitability to deteriorate and frustrating investors. In response, cable company stock prices have fallen. Cox Enterprises stated that the increasingly competitive cable industry environment makes investment in the cable industry best done through a private company structure. Discussion Questions: 1. What is the equity value of the proposed deal? 2. Why did the board feel that it was appropriate to set up special committee of independent board directors? 3. Why does Cox Enterprises believe that the investment needed for growing its cable business is best done through a private company structure? 4. Is Cox Communications a good candidate for an LBO? Explain your answer. 5. How would the lenders have protected their interests in this type of transaction? Be specific.