Case Study Short Essay Examination Questions

Essay

Case Study Short Essay Examination Questions
Cox Enterprises Offers to Take Cox Communications Private
In an effort to take the firm private, Cox Enterprises announced on August 3, 2004 a proposal to buy the remaining 38% of Cox Communications' shares that they did not currently own for $32 per share. Cox Communications is the third largest provider of cable television, 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.
The deal is valued at $7.9 billion and represented a 16% premium to Cox Communication's share price at that time. Cox Communications would become a subsidiary of Cox Enterprises and would continue to operate as an autonomous business. In response to the proposal, the Cox Communications Board of Directors formed a special committee of independent directors to consider the proposal. Citigroup Global Markets and Lehman Brothers Inc. have 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.
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-Why did the board feel that it was appropriate to set up special committee of independent board directors?