Sunday, August 08, 2004

Behind Closed Doors

Friday's edition of the Kansas City Star's Midday Business Update included some interesting comments from the chairman and CEO of Cox Enterprises, Inc. This is the company owned by the Cox family and its heirs that is buying out the 38 percent of the stock of Cox Communications (the cable and telecom company) now held by the public.

Cox Enterprises, Inc., is going to pay $7.9 billion to buy back that stock. To give some sense of both the size of the deal and the size of Cox Communications, $7.9 billion would pay for 79 fiber to the premises projects the size of that proposed by LUS (that is, 79 projects costing $100 million each). It also means that Cox Communications is valued by Cox Enterprises, Inc., as being worth almost $21 billion (using $7.9 billion for 38 percent as the basis for the calculations).

So, for Cox Communications, it is not a question of being able to afford to build out a fiber to the premises network in Lafayette, it is a matter of not wanting to do so.

Cox Enterprises, Inc., must be a huge firm. And it is. But, because it's privately owned by the Cox family and heirs, it would be difficult to determine what that company is worth — or even how it conducts its business.

On the day that Cox Enterprises, Inc., announced it was taking Cox Communications private, the hired guns brought into Lafayette to accentuate the negative about the LUS plan prattled on about the superiority of accountability within corporations versus that inside government. Guess they don't read newspapers or watch any TV, otherwise they may have noted that corporate accountability ain't what it used to be — or, at least, what we think it used to be.

Not one of the panelists appeared even willing to conceed that the notion of corporate responsibility to communities had any merit.

But, what is clear is that Cox's cable and telecom division will be less accountable to communities and the publics they ostensibly serve as a result of their stock being taken out of publicly traded markets.

Cox Enterprises, Inc., CEO & Chairman Jim Kennedy, was quoted in the Kansas City Star as saying that swallowing Cox Communications would likely slow the parent company's buying habits. Could it constrain its capital spending as well?

As a quasi-independent company, Cox Communications has had to live according to the plans and projections it laid out in its various public filings. It also had to retain and control some of its profits, which enabled it to do things like upgrade networks and deploy new services. Now, as a privately held vassel of its parent company, the cash cow that is cable services could represent a very tempting pool of revenue that could be used to maintain other, less profitable segments of the company. Which ones? We don't know because the parent company, Cox Enterprises, Inc., is privately held and is not required to divulge its financial data to the outside world.

No doubt, milking the cable systems dry is not the intent of the family in taking Cox Communications private. But, $7.9 billion is a lot of money and it is a significant amount of debt. If the national economy falters and things like the company's newspaper division goes soft, or maybe the television stations, or the auto auction business — that money being generated by the Cox cable systems could look like a great life boat for those other segments of the company.

And, why not? After all, the Cox family will only have to answer to itself now.

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