Commisso Seen Constrained In Ability to Raise Mediacom Bid
Rocco Commisso, Mediacom’s CEO and controlling shareholder, offered to buy out the company’s public stockholders for $6 a share. He may have trouble raising the bid because the cable operator already carries so much debt, Standard & Poor’s said. Wall Street analysts said the bid seemed low and investors ran Mediacom’s stock price up 17.6 percent Tuesday to $6.27 a share.
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Mediacom is on the verge of a period of declining capital intensity, and investors may want to keep their stake as free cash flow rises, BTIG analyst Richard Greenfield said in a note recommending investors buy the company’s shares. Like Cablevision in 2006, when its controlling shareholders failed to take the company private, “Mediacom’s free cash flow is in the middle of a similar free cash flow inflection that is being substantially undervalued by the buyout offer,” Greenfield wrote.
Mediacom is already highly leveraged, Sanford Bernstein analyst Craig Moffett wrote investors. “Despite the smallish nature of this proposal, (roughly $250M to buy out public holders), the willingness of banks to finance this transaction is notable.” The deal would take the company’s estimated leverage up to 6.8 times gross earnings, from 6.3 times as of March 31, S&P said. It lowered its outlook on Mediacom’s credit to negative. Commisso would finance the deal under Mediacom’s existing credit facilities.
The proposed offer does not involve a transfer of control, because Commisso already owns 40 percent of the company’s stock and 87 percent of the voting power, he said in a letter sent to Mediacom’s directors Monday. “In considering my proposal, you should be aware that I am interested only in pursuing the proposed transaction and that I am not interested in selling my stake in the Company or considering any strategic transaction involving the Company.” Mediacom’s board referred the issue to a special committee of independent directors Thomas Reifensheiser and Natale Ricciardi to review the offer, it said. Reifensheiser was part of the Cablevision special committee that helped push the Dolan family’s 2006 buyout offer “notably higher,” Greenfield said.
If the committee recommends the deal, a majority of Mediacom’s public shareholders may still have to consent before it can be completed, Greenfield and Citigroup analyst Jason Bazinet wrote separately. “We expect existing minority holders to reject [the] current offer,” Bazinet said. “But, we view it as unlikely management will offer more than $7 a share.” That may not be enough to sway holdouts, he said.