NEW YORK — Blasted by accusations of double-dealing and financial improprieties, the Rigas family Thursday abandoned all board seats and management control of Adelphia Communications, the company John Rigas founded a half century ago.
Move is part of a complex restructuring that caps two months of turmoil at the cabler in the biggest U.S. corporate meltdown since Enron.
Adelphia shares plunged 54% when they resumed trading at midday, closing at $2.60 — down from a year-high near $43. Nasdaq halted trading in the stock on May 14 pending developments.
Investors fled as it became clear the Rigases had used Adelphia, a publicly traded company they controlled, to back loans for their own pet projects. That exposed the company and minority stockholders to hefty financial risk that wasn’t disclosed.
The numbers are unsettling, Wall Streeters said. The cabler will record a higher-than-expected $2.8 billion of off-balance sheet debt in its revised 2001 financial report, according to a special committee of independent directors who took the helm of Adelphia this week.
Company is liable for a whopping $3.1 billion in co-borrowing agreements with Rigas family entities — deals that will be outlined in a report Adelphia plans to put out any day.
The committee said Adelphia broke its own bylaws when it entered into transactions with affiliates without the approval of independent directors. Outside advisers and forensic accountants are studying the transactions. Two grand juries and the SEC are also probing Adelphia’s finances, and shareholders are suing.
The Rigas’ Adelphia stock will be parked in a voting trust until all the issues are clarified. That’s a somber lesson for the Rigas clan. Patriarch John Rigas launched Adelphia in 1952 and has run it since, keeping it in the family for his children. He racked up debt growing the business through acquisition in the hot cable market of the late 1990s.
“It was a seller’s market, and he was a buyer. He should have gotten out then,” one Wall Streeter said.
Rigas resigned as chairman-CEO last week and gave up his board seat. He will get a severance package worth $4.2 million over three years.
Son Timothy has stepped down as chief financial officer, Michael resigned as exec VP of operations, and James left his post as exec VP of strategic planning. The three surrendered their board seats as well.
Leonard Tow, who sold his Century Communications to Adelphia in 1998 and remains a major shareholder, is trying to claim two seats on the board and win operational control of the company.
It’s not clear if the house cleaning Thursday will save the company from bankruptcy. Adelphia defaulted on certain interest payments and needs cash and the goodwill of its lending banks to avoid Chapter 11. It’s still pursuing the sale of some cable systems in Los Angeles and Florida.
Here are additional details of the revamp:
- The Rigas family will hand over Adelphia assets valued at more than $1 billion.
- Cash flow from outside cable properties owned by the family will back the family’s obligations under co-borrowing pacts. Selected cable systems owned by the family may be transferred directly to Adelphia at their appraised value.
- The Rigas family will transfer to Adelphia convertible securities worth $567 million, lowering the cabler’s debt by that amount.