Time Warner axis of cable universe

Conglom teams with cable giant for Adelphia

NEW YORK — Time Warner Cable may not be as big as Comcast, but the conglom could hold an envious place at the cable table in both Los Angeles and New York. The two companies on Monday submitted a joint bid for bankrupt Adelphia in a move that could make TW the dominant player in the prized L.A. market, guaranteeing leverage for years to come when negotiating with content providers.

For its part, move may enable Comcast to unwind its 21% stake in TW Cable by swapping customers, thus avoiding a big tax bill. Comcast topper Brian Roberts also could use the deal to up distribution of his small stable of cable nets.

While the Comcast-TW Cable duo is considered the leading contender, they were hardly the only suitors as Monday’s bidding deadline for the country’s fifth largest cabler closed.

Their fiercest competition will come from private equity firms Kohlberg Kravis Roberts and Providence Equity Partners, who likewise teamed up to make a joint bid. If victorious, it would mark the largest leveraged buyout since KKR bought Nabisco in 1989.

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None of the players involved would comment on dollar figures, although CNBC reported Comcast-TW Cable made an offer worth nearly $17 billion in cash and stock. There were other reports that the bid could have been as low as $15 billion. The Kohlberg-Providence bid was reported to be in the $15 billion-$16 billion range.

Asking price too high

Wall Street investment houses weren’t surprised by reports that Comcast-TW Cable might come in higher, but continued to maintain that Adelphia’s asking price of $17.5 billion was on the high side. They believe $15 billion is more in keeping with the actual worth of Adelphia, which was brought to ruin when the founding Rigas family was charged with bilking the company of millions of dollars.

“It’s almost a must-have property for Time Warner,” said Sanford C. Bernstein cable analyst Craig Moffett. “Comcast is the dominant cable operator in 22 of the top 25 markets. Two of the other three markets are L.A. and New York.”

Wall Street believes that in time, Time Warner will buy up Cablevision’s systems in New York and become the leader in the country’s No. 1 market after L.A.

“Time Warner may never match the sheer size of Comcast, but if Time Warner owns New York and Los Angeles, it’s always going to have a place at the table in its negotiations with content owners that is out of proportion with its size,” Moffett said. “Like it or not, New York and L.A. are the Boardwalk and Park Place of the media world.”

Comcast, the country’s No. 1 cabler, has 21.5 million subscribers, while No. 2 market leader TW Cable has 10.9 million. Adelphia has 5.3 million customers.

Of those, Adelphia has 1.5 million customers in the Los Angeles area, a 38% market share. Splitting the rest of the pie are Cox Communications (20%), TW Cable (17%), Comcast (14%) and Charter Communications (11%).

Industry insiders say it’s unclear exactly how Comcast and Time Warner would divide up Adelphia’s systems, but that Time Warner would likely demand L.A.

Adelphia spokesman Paul Jacobson declined comment, saying the bidding process is confidential. He said it will take Adelphia’s board weeks to sift through the bids and decide what course to take — i.e., whether to sell or come out of Chapter 11 bankruptcy intact and remain in operation as Adelphia.

Adelphia’s creditors could balk at a sale if they can’t get the full asking price. In particular, major creditor W.R. Huff Asset Management has publicly warned that he would block any sale less than $17.5 billion.

Many options

“There are all sorts of scenarios. We can sell the company, sell part of it or emerge from bankruptcy,” Jacobson said. “Creating the most value for our creditors is the No. 1 priority.”

Comcast spokesman Tim Fitzpatrick and TW Cable spokesman Keith Cocozza also declined comment, citing the confidentiality of the bidding process.

If Comcast used the Adelphia bid to unwind its stake in TW Cable, the two cable congloms could swap subscribers and avoid having to pay as much as $1 billion in taxes that would accompany any cash transaction.

Adelphia, which has divvied up its systems into seven clusters for the sale process, was expected to have received a number of bids by Monday evening, including smaller cablers such as Patriot Media & Communications in Greenwich, Conn., which is working with private equity firms Spectrum Equity Investors, Bain Capital and Silver Lake Partners.

Other private equity firms expected to bid for at least some of Adelphia’s systems–whether alone or in tandem with other small cablers–included Goldman Sachs, the Carlyle Group, J.P. Morgan Capital Partners and Thomas H. Lee Partners.

Visibly absent from the bidding were any other large cablers. Cox took itself out of the running last year when it went private, while Charter Communications — Microsoft co-founder Paul Allen’s troubled cable company — also has been conspicuously absent from the Adelphia sale process. Some Wall Street insiders have speculated that Allen could make a bid through his Vulcan Inc. and then contribute the equity to Charter.

Whether Allen went ahead and made a midnight bid was unclear.

News of the joint bid didn’t do much for Comcast and Time Warner in trading Monday, underscoring the uncertainty of which way Adelphia will go. Comcast shares were down 22¢ to close at $32.19; shares of Time Warner — parent conglom of TW Cable — were up 7¢ to close at $18.

It also was a busy day for the telecom industry, with giant AT&T and SBC Communications — which is pushing into the TV biz — announcing their intent to merge in a deal valued at $16 billion.

Wire services contributed to this report.