Joint Bid for Adelphia Expected
An offer from Comcast and Time Warner is likely to be the only proposal for the entire cable company.
By Sallie Hofmeister, Times Staff Writerhttp://www.latimes.com/business/la-f...30,print.story
January 29, 2005
The nation's two largest cable TV providers have finalized a joint bid for Adelphia Communications Corp., the only offer likely to be submitted for the entire company by Monday's deadline, according to people close to the situation.
Terms of the offer by Time Warner Inc. and Comcast Corp. were not disclosed. But industry executives said they expected the amount to be far short of the $17.5 billion demanded by bondholders of Adelphia, which remains in Chapter 11 bankruptcy.
Adelphia filed for protection from creditors in June 2002, after the ouster of founder John Rigas amid an accounting scandal. The 80-year-old executive and his son Timothy were convicted last July of looting the firm and cheating investors out of billions of dollars. They await sentencing.
The company put itself up for sale in April as part of a plan to emerge from bankruptcy. Investment bankers for Adelphia, the largest cable operator in Southern California, had tried to stoke a bidding war by breaking the company into seven clusters, enabling small entities to potentially bid on the pieces.
They also tried to interest a group of private equity firms to jointly bid against Time Warner and Comcast for the whole company. But no competing offer had materialized by Friday because of the price.
"For a financial bidder, it's a difficult pill to swallow," said Craig Moffett, an analyst at Sanford C. Bernstein & Co.
Analysts said bidders with cable holdings could justify paying a higher price because of the savings they could achieve by eliminating redundancies in overhead and extracting volume discounts from programmers and other suppliers.
Industry executives expect a Time Warner-Comcast bid to be in the neighborhood of $14 billion to $15 billion. With cable shares trading at historic lows, that figure is close to Adelphia's value based on Wall Street yardsticks.
At the close of 2003, Adelphia owed creditors $20.2 billion, according to a recent Securities and Exchange Commission filing in which the company restated financial results for 2001, 2002 and 2003.
Since Adelphia went on the block, cable values have plummeted because of investor concerns over competition from satellite TV and phone providers. Cable stocks declined 4% last year, compared with gains of 1% for satellite stocks, 9% for entertainment stocks and 9% for the Standard & Poor's 500, according to Tom Eagan, an analyst at Oppenheimer & Co.
Adelphia has lost more subscribers to satellite than any other major cable operator, with more than 1 million defecting since the accounting scandal came to light in early 2002, Eagan said.
With dwindling resources, Adelphia was forced to delay rolling out such advanced services as high-speed Internet access that have helped other cable companies stave off customer defections.
Cable executives involved in the bidding process say the subscriber losses could encourage creditors to back off their $17.5-billion price out of fear that Adelphia could lose more customers.
"Adelphia better hurry up because value is slipping away," said analyst Moffett, who estimated that loss at $350 million for the last quarter of 2004.
Adelphia executives privately acknowledge that its reputation has been tarnished by the scandal but say that with its cable systems now 85%-upgraded for new services, the company is in better shape to keep its remaining 5.2 million customers.
Comcast and Time Warner are bidding jointly for Adelphia to help them undo an earlier relationship that has presented complications for both.
In 2002, Comcast inherited a 21% stake in Time Warner Cable as part of its acquisition of AT&T Broadband. At the time, federal regulators approved the purchase on the condition that Comcast dispose of the Time Warner holdings by 2007.
Comcast has the right to force Time Warner to buy the 21% stake in May. But Comcast has insisted on receiving subscribers from Time Warner rather than cash on which it would have to pay taxes.
Time Warner, for its part, has balked at giving up subscribers to its competitor. Comcast already serves about 21 million subscribers, about twice as many as Time Warner. By buying Adelphia, Time Warner could gain subscribers and be in a stronger position to relinquish some of them to Comcast.