THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: TUESDAY, June 7, 1994 TAG: 9406070364
SECTION: BUSINESS PAGE: F1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
DATELINE: 940607 LENGTH: Long
``There's a feeling in the industry that the benchmark for what is a small cable operator is steadily rising,'' said Stuart M. Rossmiller, a media and entertainment analyst for New York-based Fitch Investors Service Inc.
{REST} The $2.3 billion deal between Cox Cable and Times Mirror, confirmed Sunday by the companies, will create the nation's third-largest cable operator with 3.1 million customers.
Hampton Roads, where Cox has about 196,000 subscribers, would be the fourth-biggest market for the new entity, behind San Diego, Phoenix and New Orleans.
Despite its new-found size, Cox-Times Mirror would still be far smaller than any of the regional Bell phone companies, each of which plans to expand into cable and other video services.
Ironically, Cox and one of those regional Bells, Southwestern Bell Co., had until April planned a partnership to provide cable services. Southwestern Bell was to have injected $1.6 billion in cash into the partnership, which the two companies planned to use to buy operations like Times Mirror's.
In the wake of severe cable-rate cuts ordered by the Federal Communications Commission, the Cox-Southwestern Bell deal crumbled. Another large phone-cable merger - between Tele-Communications Inc., the nation's largest cable operator, and Bell Atlantic Corp. - died in February partly because of the same rate cuts.
``I'm not convinced we've seen the last cable-telco deal,'' said Ron Rizzuto, a finance professor at the University of Denver who studies the cable industry. ``But I think clearly there will be more cable-cable kinds of deals.''
Norfolk-based TeleCable Corp., the nation's 19th-largest cable operator, has said it is exploring ``future alternatives,'' including a possible sale.
Fitch's Rossmiller said TeleCable would fit well alongside the Cox-Times Mirror operations. He pointed out that TeleCable's sister company, Norfolk-based Landmark Communications Inc., already has a joint classified-ad publishing venture with Cox's Atlanta-based parent, Cox Enterprises Inc.
``It seems as though, in looking down the road for business partners, that those who have already established good working relationships have crossed a big hurdle in making more things work,'' Rossmiller said.
Franklin R. Bowers, vice president and general manager of Cox's Hampton Roads system, said Cox's deal with Times Mirror has been in the works ``a long time,'' even before Cox started serious talks with Southwestern Bell late last year. He said part of the impetus behind the Southwestern Bell joint venture was getting the cash infusion ``to go ahead and buy the Times Mirror systems.''
After the Southwestern Bell deal fell apart, Cox had to go back to the financial drawing board and then outbid several other large cable operators, including TCI, to land the Times Mirror systems. Cox's top executives will run the new entity from their headquarters in Atlanta, and the combined operation will operate under the Cox name.
Cox solved its financing problem by going deeper into debt. It will basically hand over $1.4 billion to Times Mirror by agreeing to take over that amount of debt from that Los Angeles-based company. Still, compared to its equity, Cox will be far less laden with debt than is typical in the cable industry.
Cox also said it will take the new entity public, listing its common shares on the New York Stock Exchange. Cox will own 80 percent of that entity. The remaining 20 percent, valued at roughly $930 million, is to be allocated to Times Mirror shareholders.
Rossmiller said Cox will have more ``financial flexibility'' by allowing it to sell new stock or debt instruments on public markets to help finance new acqusitions.
Alvin S. Mirman, a cable analyst for New York-based Gruntal & Co., a securities concern, said Cox may not hold onto all of the 3.1 million subscribers it will have after the Times Mirror deal. He predicted the company will swap some systems in smaller metropolitan areas or in large areas in which it has a small presence for systems belonging to other companies next to its big operations in places like Hampton Roads or San Diego.
``Cable companies,'' he said, ``are going to need to get the most concentration they possibly can in a given local area.''
Cox is paying ``a rich price'' for the Times Mirror systems, probably because the company has larger plans than just delivering cable services, Mirman said. ``I think Cox is hoping they're going to be able to make money by getting into the phone business, because they're certainly not going to get it back in cable.''
Cox's Bowers said the merger will give the company more clout to buy technology and equipment, whether it be for cable or phone services. It will also be able to acquire programming at a price necessary to compete against would-be competitors like Bell Atlantic, he said.
At some point, Cox plans to begin offering so-called interactive video services in Hampton Roads, such as videos on demand or on-line computer services. But it's not clear the Times Mirror deal will hurry that process along.
For now, Bowers said, ``It's really business as usual for us.''
{KEYWORDS} CABLE TELEVISION
by CNB