Time Warner Cable's IPO Saga Nears End
Adelphia Reorg Plan Poised for OK, Clearing Big Hurdle
By Mike Farrell -- Multichannel News, 1/14/2007 7:00:00 PM
The long wait for a Time Warner Cable public stock may be coming to a close with approval of Adelphia Communications's Chapter 11 bankruptcy organization practically in the bag — a key component for issuance of the stock.
U.S. Bankruptcy Court Judge Robert Gerber approved Adelphia's fifth plan of reorganization on Jan. 5, a move that started a 10-day shot clock for objections to be filed. So far, one group has filed an objection to the plan in U.S. District Court in Manhattan — the ACC Bondholder Group, which includes Banc of America Securities and a unit of Lehman Bros.
A hearing on the objection is scheduled for Jan. 16 before U.S District Judge Shira Scheindlin. Absent a further stay, the plan could become effective as early as Jan. 18. If that is the case, Time Warner Cable stock could begin trading around month's end.
'EVERYBODY IS SICK OF IT'
The objection came as no surprise — the ACC bondholders have objected to every plan of reorganization Adelphia has filed. And analysts who follow the stock believe that creditors representing more than 80% of the claims against the company in favor of the plan, it is unlikely that the court approval will be blocked.
“The chances are highly likely that it's going to go through,” said Jefferies & Co. cable analyst Robert Routh. While Routh added there is always the possibility that the deal could be delayed or even blocked, he said that he believes the patience of both the court and creditors is wearing thin — Adelphia filed for bankruptcy protection in 2002.
“Everybody is sick of it,” Routh said. “They want it to go through.”
If that is the case, Time Warner Cable has a relatively easy path to going public through the Adelphia shell company. According to a December report by Bear Stearns media analyst Spencer Wang, Time Warner would have to file an 8-K document with the Securities and Exchange Commission outlining its intent to go public through the shell company. It would also have to withdraw the S-1 registration statement the company filed in October to hold an initial public offering for Time Warner Cable shares.
Two weeks after the Adelphia reorganization plan is confirmed, Time Warner Cable must file an 8-A registration statement with the SEC, registering its shares on a stock exchange, most likely the New York Stock Exchange.
Adelphia creditors would end up with 16% of Time Warner Cable's equity, stemming from the July agreement to sell Adelphia assets to Time Warner Inc. and Comcast for $17.4 billion. As part of that deal, Time Warner and Comcast agreed to pay $12.5 billion in cash, with the rest coming in Time Warner Cable stock. Time Warner Inc. would control 84% of the cable company's equity and more than 90% of its vote.
ADELPHIA SHELL
Time Warner Cable expects to have a public float of about 156 million shares, made up entirely of that stock that will be issued to Adelphia creditors. According to the agreement, the creditors have agreed to sell up to 33.3% of their holdings, or about 52 million shares, within three months of the SEC declaring the registration statement effective.
Going public through the Adelphia shell has always been the preferred method for Time Warner Cable, mainly because it allows shares to hit the market faster — as opposed to April, if a traditional IPO was pursued — and it would save them millions of dollars in costs associated with such an offering.
In its fifth plan of reorganization, Adelphia estimated that an IPO could cost Time Warner Cable as much as $600 million.
Time Warner Inc. executive director of corporate communications Keith Cocozza and vice president of corporate communications Susan Duffy did not return calls for comment.
WHEN-ISSUED TRADING
In anticipation of the pending availability of a Time Warner Cable stock, the company began trading on a “when-issued” basis on the over-the-counter market on Jan. 5.
Prices have ranged from $40 per share to $42 per share. That is well above the prices at which some analysts value the stock, ranging from $34 per share to $38 per share.
When-issued shares can be bought or sold like ordinary securities, except that transactions do not settle until the stock is formally issued. The attraction: trading in when-issued shares usually require a small down payment of about 25% of the value of the shares and no margin or loan debt is needed for the balance until the settlement date, which can be weeks in the future.
And in some cases, the when-issued market can serve as a gauge to predict at what price the shares will ultimately trade.
For example, before splitting into two separate companies last January — Viacom and CBS Corp. — Viacom stock ranged from $40 to $45 per share in the when-issued market. When the new Viacom began trading on the New York Stock Exchange on Jan. 3, 2006, the stock opened at $40 per share.
But it also could go the other way. Liberty Capital tracking stock traded in the $70 to $73-per-share range in the when-issued market before it began trading officially at $80 per share. And Routh believes that the same may hold true for Time Warner Cable stock.
Routh said that when-issued markets are highly inefficient in that many large mutual funds are prohibited by their own rules from participating in them. Time Warner Cable's public float at least for the short-term will be low — only Adelphia's 16% will be available for trading and those holders have agreed to only sell one-third of their shares initially.
“There are a lot of people who cannot play in the when-issued market,” Routh said. “Once [the when-issued stock] starts trading the regular way, you often see a big swing in terms of public-market valuations.”
Armed with a new cable equity, Time Warner Cable could use its stock for acquisitions, but likely not until next year.
In a research report, Pali Research cable analyst Richard Greenfield wrote that he expects Time Warner Cable to eventually use its new deal currency to attempt to purchase Charter Communications's Los Angeles and Dallas-area systems, as well as perennial target Cablevision Systems Corp., the other major cable operator in the New York market.
“We believe cable acquisitions will be a key component of the [Time Warner Cable] growth story,” Greenfield said.
But Greenfield, who raised his target on Time Warner Cable to $38 each from $35 per share, warned that there could be near-term pressure on the shares from sales by former Adelphia creditors looking to monetize their holdings.
| Reliable Indicator? |
|---|
| Here's how some media stocks have done when they traded on an as-issued basis and later. |
| Source: NASDAQ.com |
| VIACOM |
| When-issued trading range (12/9/05-12/30/05): $40 - $45 |
| Opening price: (1/03/06) $40 |
| LIBERTY CAPITAL |
| When-issued trading range: (5/05/06-5/11/06): $70 - $73.75 |
| Opening price: (5/11/06) $80.05 |
| TIME WARNER CABLE |
| When-issued trading range: (1/05/07-1/11/07): $40-$42 |
| Opening price: ? |
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