Adelphia up for sale

Bidding to begin on beleagured cable co.

Let the cable bidding war begin.

Bankrupt cable operator Adelphia Communications was officially put on the block Thursday, after the board and management finally succumbed to pressure by testy creditors and shareholders to consider selling the business outright as an alternative to their own Chapter 11 reorganization plan.

With increasing speculation that Time Warner, Cox or Comcast would consider a preemptive bid for the cabler, the board of directors agreed Thursday to test the waters for an auction to see if it would generate “greater value to the company’s constituencies” than management’s proposed February reorg plan. That plan values the business at around $17 billion, well below what many analysts believe Adelphia could fetch on the open market today.

Company said it will still work to get approval for the $8.8 billion exit financing package that supports that plan, under which Adelphia would emerge from Chapter 11 as an independent company with a new stock listing.

The fifth-largest U.S. cabler, with some 5.4 million video customers across 30 states, boasts a valuable cluster of some 1.2 million subscribers across six counties in Southern California. That makes it a prime target for several would-be MSO buyers and could push a purchase price north of $20 billion.

The board and management, led by Schleyer and Ron Cooper, are still pushing their case for independence (presumably with the idea of selling out at a later date). They insist that various factors, including the absence of audited financial statements, the unresolved Securities and Exchange Commission action against the company and the undetermined status of the Rigas family cable properties managed by Adelphia created “a sub-optimal environment for exploring the sale of Adelphia.”

Skeptics note that management has a vested interest in selling the company after it comes out of bankruptcy, since the team stand to gain big bucks on stock options in the new entity.

The plan proposed in February calls for swapping out billions in dollars in debt for cash and new equity that will be split between bank lenders and bondholders. Many of those lenders as well as shareholders fearful of being left out in the cold filed objections with bankruptcy court. Cable networks owed money by Adelphia would be offered some stock in the cabler and a stake in a litigation trust, which would collect the proceeds of any legal victories in Adelphia’s civil suits against the Rigases, their bankers and the cabler’s former auditor, Deloitte & Touche.

Adelphia filed for bankruptcy protection in 2002 after an accounting scandal surrounding the founding Rigas family led to federal fraud charges over billions of dollars in off-balance sheet loans and other misuses of company funds.

Given interest by would-be buyers, Time Warner, Cox Communications and possibly Comcast, creditors believe they’ll do far better to sell now. Analysts speculate that Adelphia should fetch a minimum of $19 billion.

Ironically, the prospect of a full-out bidding war for Adelphia’s assets has depressed cable stocks, say analysts, since the “winner” could face extra debt and rising capital expenditures.

Indeed, swallowing Adelphia whole would be a mouthful for fourth-ranked Cox, which may be more interested in picking up choices pieces of the cabler. And while Time Warner is an obvious buyer — possibly in conjunction with Comcast as part of an elaborate swap of systems — the company may be hamstrung by a pending formal SEC charge that could impede its ability to raise public funds with which to mount an offer.

Still, sources say Time Warner could be looking to consolidate the Los Angeles market by buying Adelphia and orchestrating a simultaneous swap of systems with Comcast and Charter for their L.A. subscribers.

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