Case Notes/Answers
Case Solutions for COX COMMUNICATIONS, INC. 1999
by George Chacko Peter Tufano
Discussion Questions:
1. Why is CCI acquiring Gannett? Does the Gannett acquisition make sense at $2.7 billion?
2. Assuming that the Gannett acquisition goes through, estimate CCI’s short-term (1½ years) and
long-term (4½ years) funding needs. How much of each funding need must be met through external
financing?
3. What constraints does Clement face in satisfying CCI’s funding needs? You may assume that
CEI has mandated a 65% floor on their economic stake.
4. Analyze the solutions proposed in Exhibit 8. What is a FELINE 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 FELINE PRIDES?
5. Which solution in Exhibit 8 seems to satisfy the financing constraints determined above and why?
, 5-201-116
REV: FEBRUARY 27, 2004
TEACHING NOTE
Cox Communications, Inc., 1999
Objectives
This case introduces students to the questions of (1) how to make short-term and long-term
funding decisions, (2) how new/innovative financial products create value by allowing firms to
accomplish business objectives (in this case, meeting a firm’s funding requirements), and (3) how to
go about analyzing the use of financial products with embedded options. The case also illustrates
how various constraints, both typical (tax shields, costs of financial distress, financial flexibility) and
atypical (the financial wishes of a majority shareholder), can influence a firm’s financing decisions as
well as how innovative financial instruments can be used to alleviate these financing constraints and
create value.
Depending on which features of the case are emphasized (the funding decision or the FELINE
PRIDES security), the case can be used in a corporate finance course or in an introductory options
and futures course. The case is currently used in both the First-Year Finance course and the Corporate
Financial Engineering course at Harvard Business School.
Case Summary
As shown in Exhibit 1, the cable television industry is undergoing a rapid consolidation. A few
large cable companies are buying up cable properties of the smaller players in the industry to achieve
cost savings through economies of scale and scope.
Cox Communications, Inc. (CCI), has set out a goal to be one of the few major national cable
companies that remain after this period of consolidation. Therefore, it too has undertaken a series of
acquisitions in the previous few months. It has purchased the assets of Media General, TCA, and
some of the cable properties of AT&T. In addition, it is currently negotiating to purchase the cable
properties of Gannett Co., a diversified media company. If the Gannett acquisition is undertaken at
the $2.7 billion price the deal is currently at, CCI will have acquired $10 billion in assets in just the last
6 months.
Case Solutions for COX COMMUNICATIONS, INC. 1999
by George Chacko Peter Tufano
Discussion Questions:
1. Why is CCI acquiring Gannett? Does the Gannett acquisition make sense at $2.7 billion?
2. Assuming that the Gannett acquisition goes through, estimate CCI’s short-term (1½ years) and
long-term (4½ years) funding needs. How much of each funding need must be met through external
financing?
3. What constraints does Clement face in satisfying CCI’s funding needs? You may assume that
CEI has mandated a 65% floor on their economic stake.
4. Analyze the solutions proposed in Exhibit 8. What is a FELINE 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 FELINE PRIDES?
5. Which solution in Exhibit 8 seems to satisfy the financing constraints determined above and why?
, 5-201-116
REV: FEBRUARY 27, 2004
TEACHING NOTE
Cox Communications, Inc., 1999
Objectives
This case introduces students to the questions of (1) how to make short-term and long-term
funding decisions, (2) how new/innovative financial products create value by allowing firms to
accomplish business objectives (in this case, meeting a firm’s funding requirements), and (3) how to
go about analyzing the use of financial products with embedded options. The case also illustrates
how various constraints, both typical (tax shields, costs of financial distress, financial flexibility) and
atypical (the financial wishes of a majority shareholder), can influence a firm’s financing decisions as
well as how innovative financial instruments can be used to alleviate these financing constraints and
create value.
Depending on which features of the case are emphasized (the funding decision or the FELINE
PRIDES security), the case can be used in a corporate finance course or in an introductory options
and futures course. The case is currently used in both the First-Year Finance course and the Corporate
Financial Engineering course at Harvard Business School.
Case Summary
As shown in Exhibit 1, the cable television industry is undergoing a rapid consolidation. A few
large cable companies are buying up cable properties of the smaller players in the industry to achieve
cost savings through economies of scale and scope.
Cox Communications, Inc. (CCI), has set out a goal to be one of the few major national cable
companies that remain after this period of consolidation. Therefore, it too has undertaken a series of
acquisitions in the previous few months. It has purchased the assets of Media General, TCA, and
some of the cable properties of AT&T. In addition, it is currently negotiating to purchase the cable
properties of Gannett Co., a diversified media company. If the Gannett acquisition is undertaken at
the $2.7 billion price the deal is currently at, CCI will have acquired $10 billion in assets in just the last
6 months.
