Two of the biggest U.S. cable television companies signed a $2.3 billion merger agreement yesterday, creating the No. 3 cable company in the country after Tele-Communications Inc. and Time Warner, and hastening a trend toward regional consolidation.
Cox Enterprises Inc., an Atlanta-based newspaper and television company, agreed to buy the cable systems owned by Times Mirror Corp., publisher of the Los Angeles Times, New York Newsday, The Sun, and The Evening Sun. Cox operates 21 cable systems, publishes 18 daily newspapers and owns or operates 20 radio and television stations.
For Cox, the merger creates a solid corridor of cable systems between San Diego and Los Angeles, essentially Southern California, a region that is not only heavily populated but that also boasts some of the highest per-capita incomes in the nation. Under the deal, Cox will wind up with some 3.1 million customers, the company said.
Gathering so many customers into one system should make it possible for Cox to compete on more equal footing with Pacific Telesis, a regional telephone company, not just in cable and telephone but also in an array of information services, from wireless telephones to two-way data hookups.
This year, the Federal Communications Commission granted Cox a license covering most of Southern California that lets the company of fer advanced wireless telephone and data services.
Such services are easier to develop if a company already owns cable systems throughout the area it wants to serve.
Cox had several franchises in the region, and additional franchises simply strengthen its hold on the regional market.
Size is critical to survival in the cable business; being big gives a company the clout to acquire programming at competitive prices.
For Times Mirror, the deal reflects a decision to focus on providing, rather than distributing, information services.
"We reached the conclusion that from a strategic standpoint if we were going to stay in the cable business, we were going to have to grow," said Robert Erburu, the chairman and chief executive of Times Mirror.
"Since you couldn't do that and also grow on the content side, we had to make a decision on which way to go."
Times Mirror and Cox Cable also agreed to form a $200 million partnership to develop television programs for cable viewers. The Outdoor Life Channel, which focuses on camping, fishing and hunting, will be its first.
The deal will have to be approved by government regulators and pass muster with a majority of Times Mirror shareholders.
To finance the deal, essentially a reverse spinoff, Times Mirror is going to sell everything it owns except cable to a new company, also called Times Mirror.
Cox Cable will acquire the company's cable franchises.
All Times Mirror shareholders will receive a 20 percent stake, or about 59 million shares, of Cox Cable, worth, the company estimates, around $932 million. In addition, Times Mirror will borrow $1.364 billion, keep the cash and let Cox assume the debt.
Cox will still have one of the lightest debt burdens in the cable industry, the company says.
In addition, Cox Cable stock will now be registered on the New York Stock Exchange.
Cox had been the nation's sixth-largest cable television network with 1.78 million subscribers. Times Mirror had been 11th, with 1.23 million.