Cox Communications Case
1. Why is Cox acquiring Gannett? Does it make sense at 2.7 billion.
2. Assuming the Gannett acquisition goes through, estimate CCI’s (1 ½ years) and long term (4 ½ years) funding needs. How much of each funding need must be met through external financing?
3. What constraints do they face in satisfying CCI’s funding needs? Assume a 65% floor on CCIs economic stake”
4. Analyze the proposed solutions. What is a Felines Prides security? What are the advantages/disadvantages to firms using this security? Decompose this security into its debt and equity components. What, economically, is a firm doing when it issues a Felines prides security.?
5. What solution seems to satisfy the financing constraints …show more content…
If Cox decided to finance all by issuing equity, family member’s economic equity will drop below 65%, which was not acceptable in this case. But with other ways to finance, it will be fine.
Cox had four financing options:
1) Issuance of debt,
2) Issuance of common share,
3) Feline Income Prides issuance
4) Asset sales.
To know the advantages and disadvantages of these options, we have to analyze financing options by analyzing the actual need of CCI. We thing that the financing decision should be consistent with CCI’s long-term capacity for future activities.
Investment decisions have been affected by some factors.
A. Making double the size of the company every five years.
B. Being able to place a large block of Cox equity in the market.
C. Preserving the family’s economic ownership of Cox. With the control of the firm, the family considered appropriate to maintain a supermajority stake in conjunction.
D. They intended to retain sufficient financial flexibility to continue to fund planned and unexpected business opportunities.
E. Cox was targeting a Debt/EBITDA ratio of no greater than 5 to maintain a investment-grade rating Issuing debt advantages:
The advantages are lower cost compared to equity.
The transaction costs would be less than 2%.
The interest will be tax deductible, and debt