After about 10 years in the public spotlight, Mediacom Communications chairman and CEO Rocco Commisso last week turned his back on Wall Street, engineering a plan to take his cable company private for $6 per share.
The proposal, which is being
evaluated by a special committee
of Mediacom’s independent
directors, would cost Commisso
about $250 million (he already
owns 40% of the stock and 87% of
the vote) and is the latest chapter
in what has been a Horatio Alger-
like story for the longtime cable
executive.
Commisso, a native of Calabria,
Italy, came to America
with his family at age 12, worked
nights at a pharmaceutical plant
to pay for an Ivy League education
— he has a bachelor’s degree
and a master’s in business administration
from Columbia University,
where, as an undergrad,
he served as captain of the soccer
team — and entered the banking
industry straight out of school.
After stints lending to the media
and communications sector
for Chase Manhattan Bank and the
Royal Bank of Canada, Commisso
served almost 10 years as chief
financial officer at CableVision
Industries, a Sullivan County, N.Y.-
based MSO with 1.3 million subscribers
across the country.
When CVI sold its systems to
Time Warner Inc. in 1995, Commisso
broke out on his own,
forming Middletown, N.Y.-based
Mediacom and buying his first
system in 1996. Through the years,
through a combination of debt and
determination, he has built the
MSO up into the seventh-largest
operator in the country, with 1.2
million customers, mostly
in Iowa and Illinois.
If Commisso is successful,
he will join the ranks of
other cable companies that
eschewed public investors
— including Cox Communications
in 2004 and Insight
Communications in
2005 — all with positive
results. Since it shed the
public mantle in 2005, Insight
Communications
has had five consecutive
years of basic subscriber
growth and has enjoyed revenue
and cash-flow growth rates that
have far exceeded its larger publicly
traded brethren. Cox Communications,
which was one of
the top performers when it was
public, has continued that positive
growth trajectory. Last year,
Cox introduced plans to build
and launch its own residential
wireless service, something that
Wall Street probably would never
have allowed the company to do.
While Commisso has not made
public his motivation, most analysts
believe it is a combination of
frustration with the company’s
stock price and a desire to run his
business his own way, rather than
at the whim of Wall Street.
Mediacom went public in
February 2000 at $19 per share,
around the same time that smallmarket
cable operators were beginning
to attract attention as the
next big growth engines in cable.
The top three mid-market MSOs
— Mediacom, Insight and Classic
Communications — all went
public within six months of each
other.
But small MSOs fell out of favor
with investors quickly. Classic
filed for bankruptcy protection in
2001, and TCA, which Cox purchased
in 1999 for $4,000 per subscriber,
was sold in 2005 for about
$2,500 per customer. Only Insight
and Mediacom survived and
thrived, though despite strong
performance, they watched their
stock prices languish.
Commisso has shown his
frustration with cable valuations
in public before.
At The Cable Show in Washington,
D.C., in 2009, Commisso
lamented Wall Street’s tepid response
to cable performance
during the worst period of the
recession in late 2008 and early
2009. Although cable operators
consistently reported doubledigit
cash-flow growth and high
single-digit revenue growth during
arguably the worst economy
in decades, valuations remained
low. For Mediacom, which at the
time was trading at a multiple of
4 times estimated free cash flow,
the blow was particularly harsh
given its 8.4% revenue growth
and 10.3% cash-flow growth in
2008. In addition, free cash flow was expected to grow 10
times in 2009 (it grew nearly
12 times).
“If you don’t get the right
multiple then, when are you
going to get it?” Commisso
asked at the 2009 event.
Insight vice chairman
and CEO Michael Willner,
who expressed no direct
knowledge of Commisso’s
motivation for going private,
said Wall Street has consistently
undervalued cable.
“I don’t think there is any
economic justification for
cable stocks trading where
they trade,” Willner said. “If
the public isn’t going to be
more realistic about cable
values and the management
team believes in the growth
of their companies, I completely
understand what Rocco
is doing.”
Willner said that while
running the business is the same
whether a company is public or
private, the advantage of being a
private entity is added flexibility.
“I don’t think we ever made any
big strategic decisions differently
because we were public versus
private, except to the extent
we would have had the ability to
do things either more quickly or
slowly, depending on what the
situation was, without the pressure
of that quarterly report card
coming out every three months,”
Willner said.
While Mediacom shares have
been on a roller coaster ride
since its 2000 IPO — ranging from
$22.63 per share to $1.89 each —
this year, the stock has been up.
Prior to announcing it would go
private, shares in Mediacom rose
16% from $4.58 on Jan. 4 to $5.33
on May 28. Since the deal was announced
on June 1, the stock has
risen another 21% to close at $6.43
per share on June 2.
That increase in the stock price
has caused some analysts to speculate
that Commisso will have
to raise his offer to get a deal
done.
Pivotal Research Group principal
and media and communications
analyst Jeff Wlodarczak
estimated that Mediacom could be
valued as high as $10 per share, although
he did not believe Commisso
would raise his price that high.
“We believe at a bare minimum
the bid will have to rise to $8 and
it is unclear whether Commisso
would be willing to move to this
level and if minority shareholders
would (or should) accept a bid at
these levels,” Wlodarczak wrote.
Citigroup analyst Jason Bazinet
added in a research note that
Mediacom’s minority shareholders
would reject the bid, similar
to the scenario that blocked
Cablevision Systems’ three attempts
to go private before the
start of the new decade.
Bazinet wrote that he expected
Commisso to sweeten his offer,
but predicted the chairman
and CEO would not exceed $7
per share. That, he added, would
not be likely to appease the other
public shareholders.
“As such, we think a year from
now Mediacom is still apt to be a
public company,” Bazinet wrote.
Collins Stewart media analyst
Tom Eagan, who also thought
Commisso’s initial offer was too
low, didn’t anticipate a Cablevisionlike
battle.
“What hurt Cablevision in
their last go-round was not only
did they not have a great relationship
with their top 10 investors,
but that Mario Gabelli kind of hijacked
the process,” Eagan said.
“Mediacom probably has a better
relationship with their investors
than Cablevision did.”
Gabelli, chairman of Gamco
Investors, helped rally a handful
of Cablevision minority shareholders
to push for a higher price
and inclusion in any future sale
of the operation during the Bethpage,
N.Y.-based MSO’s attempts
at privatization. When Cablevision’s
controlling Dolan family resisted,
the minority shareholders
voted against the deal.
It is still unclear whether Commisso
will need the approval
of minority shareholders to go
through with the transaction. In
a letter to Mediacom’s board of
directors filed with the Securities
and Exchange Commission
on June 1, Commisso stated he
would like to conclude the process
as quickly as possible.
“I am prepared to move very
quickly to negotiate a transaction
with the Special Committee
and its advisors, and believe that
my familiarity with the company
and its operations will allow us to
finalize definitive documentation
on an accelerated basis,” Commisso
said in the statement.
Also in Commisso’s favor: Mediacom
only has two large institutional
shareholders — Neuberger
Berman (with 6.5 million shares,
or 16.1% of outstanding stock) and
Columbia Wanger Asset Management
(4.7 million shares, 11.7%).
Columbia Wanger portfolio manager
Robert Mohn did not return
a call for comment. Neuberger
Berman declined comment.
While Commisso may prevail
with his minority shareholders,
at least one analyst believes that
a private Mediacom could
muzzle one of the most outspoken
cable executives in
recent years.
A popular and well-respected
executive, Commisso has
been willing to speak his mind
regarding controversial issues,
mainly those involving high
programming costs. For example,
in 2003, Mediacom threw
down the gauntlet with ESPN,
formally requesting permission
from the Federal Communications
Commission to place
expensive programming networks
on a tier. While he did not
win that fi ght, it set the stage for
another cable executive — Cox’s
then-CEO, James Robbins — to
launch a battle with the sports
network that led to manageable
rate increases. And more recently,
Mediacom’s battles with
Sinclair Broadcasting over retransmission
consent fees have
piqued the interest of politicians
and raised the specter of possible
future government intervention
in retrans disputes.
Eagan said that Cox’s Robbins
was not quite as outspoken after the
MSO went private in 2004. Robbins
retired from Cox in 2005 and died
after a brief illness in 2007.
“I think we do lose something,
because Rocco has been very
verbal about high programming
costs,” Eagan said.
But Willner believes that the
industry will have a hard time
keeping Commisso quiet, whether
Mediacom goes private or not.
And he believes that Robbins’ relatively
quiet stance after Cox went
private was more due to a lack of a
major issue to contend.
“There is not a chance in the
world that Rocco is ever going to
stop talking passionately about
what he believes in,” Willner
said. “There is no one with more
passion about the industry than
Rocco. Owning more of that company
and having more of his economic
stake tied to that company,
I would argue he would be even
more passionate.”
