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Mediacom Buys Out Longtime Backer

9/12/2008 8:00 PM Eastern

Mediacom Communications said last Monday it had reached a deal to buy back 30% of its outstanding stock from a longtime investor in exchange for non-strategic cable systems with 25,000 subscribers and about $110 million in cash.

Shivers Investments, a vehicle run by long-time Mediacom supporter Morris Communications, will exchange 28.3 million shares of Mediacom stock for 100% of the shares owned by a new subsidiary of Mediacom which will hold the non-strategic cable systems and cash. The deal, which will take the form of a tax-free split-off, values Mediacom shares at about $6.50 per share, a substantial discount to its trading price of $7.45 on Sept. 5.

In a research note, Citigroup media analyst Jason Bazinet wrote that because of the tax-free nature of the deal, the per share value of the deal was more like $7.86 each, above the cable company’s Sept. 5 trading price.

Bazinet added that Morris would likely have had difficulty selling such a large block of shares on the open market, so the arrangement helped it avoid selling its interest at a discount.

For Mediacom, it reduces the outstanding shares of the company from 94.6 million to 66.3 million shares. Since management owns about 24.8 million shares — leaving the total public float at about 41.5 million shares — Mediacom could technically take the company private for about $320 million, Bazinet estimated.

“The bottom line is that today’s announcement is a very positive development for both Mediacom shareholders and Morris Communications,” Bazinet wrote.

Mediacom shares were up 40 cents each to $7.85 per share last Monday. The stock ticked backed slightly in subsequent trading, closing at $7.34 per share (down 6 cents) on Sept. 10.

Shivers and Morris Communications are owned by William S. Morris III, a Mediacom director and longtime backer of the firm. Morris helped create Mediacom with chairman and CEO Rocco Commisso about 10 years ago. Morris and Craig S. Mitchell, the Morris Communications executives that hold seats on Mediacom’s board of directors, will resign those positions.

Morris Communications, based in Augusta, Ga., is mainly involved in publishing — it owns 13 daily newspapers and 18 lifestyle and regional magazines. With the newspaper industry in general in dire straits, it is likely that Morris decided that the time was right to cash out of its Mediacom stake.

RBC Daniels acted as financial adviser to Morris Communications.

“I am extremely grateful for their contributions, thank them for their support throughout our long association and wish the entire Morris organization the best in the future,” Commisso said of Morris in a statement.

September