Beruflich Dokumente
Kultur Dokumente
Case:CoxCommunications,Inc., 1999
WhataretheOptionsAvailableforCoxin FundingtheForthcomingAcquisition?
Debt Fundingtobeconsistentwithfirms longruncapacitytofutureactivities
Revenue Costs of goods sold Selling, general and administartive EBITDA Depreciation and Amortization Non-operating income Interest expenses Income tax Net income
1996 1997 1998 99Q1 99Q2 1460 1610 1717 499 510 468 496 540 168 159 436 505 518 142 156 556 609 659 189 195 335 405 458 123 159 -104 -193 2115 384 890 146 202 223 54 69 23 -54 883 144 352 -52 -137 1210 252 505
Revenue Costs of goods sold Selling, general and administartive EBITDA Depreciation and Amortization Non-operating income Interest expenses Income tax Net income
1996 1997 1998 99Q1 99Q2 100% 100% 100% 100% 100% 32% 31% 31% 34% 31% 30% 31% 30% 28% 31% 38% 38% 38% 38% 38% 23% 25% 27% 25% 31% -7% -12% 123% 77% 175% 10% 13% 13% 11% 14% 2% -3% 51% 29% 69% 68 -4% -9% 70% 51% 99%
Total Assets Cash and marketable securities Total current assets Current liabilities Deferred taxes Long-term debt Other liabilities Total laibilities Total shareholders equity
1996 1997 1998 5784 6557 12879 42 28 31 165 377 197 250 245 336 294 722 2887 2824 3149 3920 155 84 359 3523 4200 7502 2261 2357 5377
99Q1 99Q2 14727 16169 90 23 265 210 334 362 3668 4152 3383 3587 485 439 7870 8540 6857 7629
Total Assets Cash and marketable securities Total current assets Current liabilities Deferred taxes Long-term debt Other liabilities Total laibilities Total shareholders equity
1996 1997 1998 99Q1 99Q2 100% 100% 100% 100% 100% 1% 0% 0% 1% 0% 3% 6% 2% 2% 1% 4% 4% 3% 2% 2% 5% 11% 22% 25% 26% 49% 48% 30% 23% 22% 3% 1% 3% 3% 3% 61% 64% 58% 53% 53% 69 39% 36% 42% 47% 47%
1996 Capital expenditures -579.00 Cash flow from operations 309.00 Cash flow from investing activity -552.00 Cash flow from financing activity 246.00 Shares outstanding (all classes, in mn) 540.00 LT debt / EBITDA 5.10 EBITDA interest coverage 3.80 Free cash flow / LT debt -9.60% LT debt / (LT debt + equity) 55.50% ROE (%) -2.30% Price / book 2.76 D/E (book value) 1.25 D / E (market value) 0.45
1997 -708.00 555.00 -1108.00 539.00 541.00 5.20 3.00 -4.90% 57.20% -5.80% 4.61 1.34 0.29
1998 -809.00 666.00 -1600.00 937.00 545.00 5.90 3.00 -3.70% 42.20% 23.60% 3.64 0.73 0.20
99Q1 -225.00 176.00 515.00 -631.00 555.00 4.50 3.50 -1.40% 33% 3.70% 3.11 0.49 0.16
99Q2 -277.00 18.00 -292.00 207.00 555.00 4.60 2.90 -7.20% 32% 6.60% 2.72 0.47 0.17
70
WhataretheFinancingObjectivesofCox?
Doublethesizeofthe companyevery5years
Reluctancetoincrease theleverageofthefirm
74
WhataretheIssuesinvolvedinIssuing CommonShares?
ClassA:onevote,no dividendpaid,Coxfamily owned379.2millionout of533.8millionshares
IPOfromrivalry
76
WhataretheIssuesinvolvedinIssuing CommonShares?
Upcoming(inFall) Charter CommunicationsIPO Expectedcorrectionin themarketdueto prolongedeconomic expansioninUS
Proposedissuemight getaffectedby
Underwritingfees:2% to3%ofamountraised
WhataretheIssuesinvolvedinRaising DebttoFundGannettCableAcquisition?
Through..
Publicdebtor Bankborrowing
Maturityrangingfrom5to30years Yieldsrangingfrom65to115bpsaboveUStreasuryobligations
80
WhataretheIssuesinvolvedinRaising DebttoFundGannettCableAcquisition?
Coxfamily conservativeabout useofdebt Coxalreadyhad thehighestlevelof debtfinancingof allCEIsubsidiaries Wantedtogetthe rightbalanceof debtandequity
81
WhataretheIssuesinvolvedinRaising DebttoFundGannettCableAcquisition?
Continuingtobe investmentgradeby maintainingrequired financialvariableatalevel TargetingaDebt/EBITDA ratioofnogreaterthan5 goingforward
82
WhataretheIssuesinvolvedinRaising DebttoFundGannettCableAcquisition?
30yeartreasuryyield hadincreasedmore thanhalfapercentover pastsixmonths Directandindirectcosts ofadebtissuance wouldbelessthanthat forissuingequity
Subinvestmentgrade debtcostmore
Transactioncostswould belessthan2%
83
WhataretheIssuesinvolvedinRaising DebttoFundGannettCableAcquisition?
84
Yields for Governemnt and Corporate Bonds for July 15, 1999 1 Year 2 Year 3 Year 5 Year 10 Year Treasury bonds 5.38 5.64 5.70 5.83 5.83 US Treasury strips 5.38 5.66 5.71 5.88 6.16 A-rated industrial bonds 5.99 6.33 6.44 6.70 6.93 BBB-rated industrial bonds 6.30 6.62 6.81 7.05 7.37 BB-rated industrial bonds 6.84 7.51 7.71 8.00 8.80
88
WhataretheIssuesinvolvedinSaleof NonStrategicAssets?
SprintPCS:$4.1 billion(Taxable base:$0) Sellinginmarket willattractcapital gaintax(35%) Monetizingor obtaining equivalentcash taxefficientdeal Discover communications: $2.5billion(Taxable base:$34Million) Flextech:$300 million(Taxable base:$48Million)
Smallerstakesin otherfirms
89
WhataretheIssuesinvolvedinSaleof NonStrategicAssets?
Taxeffectivetransaction:Cox hadeffectivelyswappedits AT&Tsharesforsharesin AT&Tsubsidiariesthat ownedcableassetswithout triggeringataxableevent Receivedcashequivalentin valueandalsopostponed thecapitalgaintaxesfrom anysaleforanumberof years
90
FELINEIncomePRIDES
FinancialReportingAdvantages
Ratingagenciestreat thedebtlikeequity
95
$50
Trust
Cox Share Price in 3 Years S <= $34.6875 $34.6875 < S < $41.7984 S >= $41.7984
96
ConversionScheduleofFELINEPRIDES
Slope: 0
Slope: 1.4414
118
DecompositionofFLINEPRIDES
Slope: 1.1962 Cash flo w in 3 Y ears
Slope: 0
Maturityofcall=point intimeinvestorsare requiredtoconvert FELINEPRIDESinto equity Equitycontentof optionscanbe calculatedby computingdeltaof eachoption
Slope: 1.4414
Delta of Options Currrent stock price of CCI Risk free rate Volatility Time-to-maturity (years) Delta of call (34.69) Delta of call (41.80) Equity content in FELINE PRIDES Delta of FELINE PRIDES Model used
$40.69 As on July 31, 1999 5.63% log(1+5.7 1%/2)^2 Exhibit 6 47% 3 0.79 CCI shares 0.72 CCI shares 1.1664 1.1664 BSM
120
Dilution Effect of FELINE PRIDES Equivalent CCI stocks issued through FELINE PRIDES Issued at (Per unit) No. of units issued ($720 million / $50 million) Total no. of equivalent shares issued (14.4 million * 1.166 CCI shares) Recomputed Economic Stake of Cox Family Old shares Shares issued through FELINE PRIDES Total shares outstanding Shares owned by COX family Stake of COX family after issuing FLINE PRIDE (406.7/(621+16.79))
Whetherinsistencetomaintainaninvestment graderatingmakesense?
152
DealFinancing
Firmswhichbelievethat theirstockisundervalued willnotusestocktodo acquisitions Giventhattheexchange ratioinastockacquisitionis setbeforetheexchangetake place,thereisanelementof uncertainlyinastock acquisition
154
DealFinancing
Cashtransactionsare taxable require higherpremiumsto compensatefortaxes Signalingeffect use ofcashindicatesthat targethasbetter investment opportunities
CompanysLifeCycleandCapital Requirements
156
CostofCapitalConsiderations
157
Financing
160