Is Cox Enterprises’ plans to buy the shares of Cox Communications that it doesn’t presently own part of a growing trend among companies to go private since the Sarbanes-Oxley Act went into effect more than two years ago?

In this case, probably not.

Cox Enterprises said it would shell out $32 per share in cash—a 14 percent premium over the 10-day average closing price—for the 38 percent of Cox Communications’ outstanding shares.

Kennedy

Analysts cited the currently low stock market valuations for Cox Communications and other cable stocks as they face increasing competitive from the telephone giants. "This is a chance to make a substantial additional investment in an asset we know well," said Cox Enterprises chairman and chief executive officer James C. Kennedy, in a statement. "An increasingly competitive environment convinces us that future investments in the cable industry are best made through a private company structure."

But, did Cox also take into consideration the reduced costs and burden of no longer needing to meet the requirements of Sarbanes-Oxley and other regulations?

The company wouldn’t comment, but a spokesman said, "I don’t think it’s fair to say."

The company already isn’t required to meet all of the governance requirements that most other companies listed on the New York Stock Exchange must adhere to. This is because it had elected to be treated as a "controlled company" under the Corporate Governance Listing Standards of the New York Stock Exchange.

Since more than 50 percent of the voting power of Cox is controlled by Cox Enterprises, Cox is exempt from NYSE governance provisions that require a board to consist of a majority of directors who have been determined to be independent, a nominating committee composed entirely of independent directors, and a compensation committee composed entirely of independent directors.

Cox did point out in its recent proxy that its Compensation Committee is composed entirely of independent directors.

In addition, once it becomes private, Cox Communications still will be required to make quarterly and annual filings with the SEC. This is because it has hundreds of millions of dollars in public debt, listed on NYSE, that doesn’t come due for many years. "Its indentures require it to file," a spokesman points out, adding that the company does not plan to buy back the debt any time soon.

Cookson

Ian Cookson, corporate finance director with Grant Thornton, points out that most of the companies that have been going private in part due to SOX demands are very small companies that stand to save real money from no longer needing to report to the SEC and shareholders. "I would say it’s a factor for very small companies," Cookson asserts. "For small companies, compliance issues are onerous and being public doesn’t make as much sense. The bigger you are, the less [compliance] is a factor."

Earlier in the year Grant Thornton pointed out that privatization transaction announcements increased 30 percent in the period following the August 2002 enactment of the Sarbanes-Oxley Act to November 2003, in comparison to the 16-month period preceding the Act’s initiation from April 2001 to July 2002.

However, since the introduction of the Act, the median size of announced going-private transactions has nearly halved—from $81 million to $39 million.

For example, Elmer's Restaurants, Inc.'s recent announcement that a group led by Bruce N. Davis, the Company's chairman & CEO, has offered to buy the company and take it private is more representative of the trend: The company’s market cap is slightly more than $13 million.

In the letter from Davis to the board, he noted that going public will allow management "to focus on executing the company's strategy without having to address the burdens and costs of being a public company," which he adds have "significantly increased" with the passage of the Sarbanes-Oxley Act and related regulations. "In fact, compliance will become even more expensive and burdensome with the phase-in of new rules relating to internal control procedures," he added.

Davis pointed out that absent a going-private transaction, management expects that compliance costs for the current fiscal year will reach approximately $468,000--equivalent to 25 percent of the company’s pre-tax income for the year ended March 29, 2004. The $468,000 estimate includes $363,000 paid to external accountants, legal counsel, listing fees and other outside vendors as well as $105,000 in staff time and expenses.