Risks Seen in Adelphia’s Bid Options

Oct 11, 2004  •  Post A Comment

Adelphia Communications might want to be careful what it wishes for.

That’s the advice of several observers, who suggest that if Adelphia’s board of directors insists that Comcast and Time Warner submit separate bids instead of a joint offer, which is presently being discussed between the two multiple system operators, an already complicated sale process could get worse.

Further, the board’s tactic could backfire-one or both of the cable giants might decide to take a pass on making an offer.

The topic was to be discussed at a regularly scheduled board meeting last week, though it was unclear late in the week whether the directors had reached a decision on the matter.

Adelphia, which is in the process of emerging from federal bankruptcy protection, officially put itself up for sale in September after creditors pressed management to explore a sale while simultaneously proceeding with a plan to emerge from bankruptcy protection.

As part of the sale process, Adelphia said it would entertain bids for either the entire company or one or more of seven clusters divided by geographic region. As many as 40 potential bidders have expressed an interest in at least a piece of Adelphia, which has 5.4 million subscribers in 31 states. Offers are likely to be submitted by year-end.

Thanks to their size and ability to raise capital, and because they own assets near many of Adelphia’s far-flung systems, Comcast and Time Warner are considered the suitors best positioned to buy the whole company, particularly if they are allowed to submit a joint offer.

However, the Adelphia board might feel that pitting the two companies against each other could drive up the sale price, which is estimated at around $17 billion.

“The management and the board are committed to conducting a sales process that will provide the maximum value to our company, and they are examining issues related to that,” an Adelphia spokesman said.

A spokeswoman for Comcast declined to comment, as did a Time Warner spokesman. However, in the past executives at both companies have vowed that any offer they make will be disciplined. Comcast executives have gone one step further to say that given their company’s present size, they aren’t pressed to get bigger.

What the Adelphia board decides could have a huge impact on the sale. Things could get a lot more complicated if Comcast and Time Warner are forced to submit separate bids, in part because it remains unclear whether either company would make a bid for the entire company, a source familiar with the situation said.

What’s more, if Adelphia is sold off in pieces, sorting out the hundreds of creditors lining up to get paid could prove onerous, several sources have said, noting that the task will be challenging even if a single buyer purchases the company.

Requiring Comcast and Time Warner to submit separate bids for some or all of Adelphia could also remove a major incentive behind the two MSOs’ joining forces on a bid for Adelphia: the ability to unwind several ties that link the two companies.

Comcast presently owns a 21 percent stake in Time Warner’s cable unit that it has already begun disassembling; $1.5 billion in Time Warner shares; and a 50 percent stake in a partnership with Time Warner that owns cable systems in Texas and Kansas. Comcast has made clear it plans to unwind and monetize these stakes.