Seers slip gears with Adelphia

Profit prophets missed company's meltdown

NEW YORK — If investors are angry with near-bankrupt cabler Adelphia Communications, they’re none too pleased with Wall Street either, where analysts ignored shaky bookkeeping and failed to protect clients from the biggest corporate implosion since Enron.

Adelphia shares plunged 28% Tuesday to $2 from a year high near $43 after an SEC filing unveiled a web of insider dealing by the company’s owners. The heavy selling started in late March after the company revealed $2.3 billion of off-balance sheet debt.

“No one on the sell side (where analysts usually follow five to 10 companies) gave any warning,” said one irate fund manager.

Anyone paying close attention to the financial reports would have noticed, and flagged, several billion dollars worth of stock purchases by Rigas family entities and wondered where the money came to pay for them. The funds flowed from co-borrowing agreements backed by publicly traded Adelphia without approval from its board.

Goldman Sachs yanked the stock from its recommended buy list in early April and put the company on non-rated status, saying there was too little information available to give investment guidance. “There wasn’t enough data. We were being absolutely honest,” said Goldman analyst Rich Greenfield.

Perhaps, but it left investors stranded.

Controversial ratings

Others issued a controversial string of downgrades. Salomon Smith Barney’s Niraj Gupta cut his recommendation to neutral from buy on May 15, after the shares had been decimated and on the same day the stock was suspended from trading on the Nasdaq. It was reinstated last week.

Gupta cut that rating to sell six days later with a target price of zero. It was then trading at about $5. “It was ridiculous. It’s saying ‘I like them at $30, I like them at $10, but I hate them at $5,’ ” said another fund manager.

Gupta’s superiors may have pushed him to issue that last report, some Wall Streeters said, possibly due to sensitivity over the fact that Salomon, along with Bank of America and CS First Boston, had been hired by Adelphia as a financial advisor. Investment firms have been slammed lately for conflict of interest in peddling shares of companies to whom they also serve as investment bankers.

Wachovia Securities flip-flopped, boosting Adelphia to buy from hold May 9, only to reinstate the hold rating May 15 as the shares continued to drop.

Credit Lyonnais hung on until May 20 to go from a buy to a hold.

Still rated ‘Buy’

According to First Call, which tracks analyst research, as of Tuesday, one firm (CIBC World Markets) still had a “strong buy” rating on Adelphia, six (including Morgan Stanley, Bank of America and Jefferies) had “buy” ratings, three had “holds” (Credit Lyonnais, Sun Trust and Wachovia) and one (Salomon Smith Barney) had a “sell.”

“That’s not unusual. Even after Enron declared bankruptcy, there were still quite a few ‘buys’ and ‘holds’ ” on that stock, said a First Call rep.

Some firms want to avoid drawing attention by downgrading a stock that’s already collapsed. Others may believe a recovery is possible. Either way investors pay the price.

A special committee of independent directors that runs Adelphia now said Tuesday Leonard Tow and Scott Schneider, chairman and vice-chair of Citizens Communications, will join the board of directors.

Tow, who sold cable systems to Adelphia in 1998, owns 12% of Adelphia’s common stock.

The committee is hoping full disclosure and a complex refinancing will keep Adelphia from filing for bankruptcy.