Cox Communications, Inc.--1999

By: George Chacko and Peter Tufano

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Synopsis: This case focuses on how much external financing a firm needs and what securities the firm should issue to raise this financing. Cox Communications is a major player in the cable industry, which is consolidating due to technological changes/capabilities brought about by the Internet. The corporate treasury of Cox Communications must decide how much external financing is necessary to finance a series of intra-industry acquisitions that Cox has recently undertaken. The choices are plain-vanilla equity, debt, asset sales, and a new equity-linked derivative known as FELINE PRIDES, offered by Merrill Lynch. The treasurer and his team must make this decision facing the usual market constraints. There are also some special constraints, including maintaining financial flexibility for further acquisitions and limiting the dilution of Cox's largest shareholder, who owns nearly 70% of the firm.