Cable Operators

Adelphia Seeks Outside Bids

11/14/2004 7:00 PM Eastern

Taking no chances that Time Warner Inc. and Comcast Corp. will offer a price high enough for its cable assets, Adelphia Communications Corp. is encouraging a team of private-equity investors to make a joint bid for as much as $18 billion, a published report said Friday.

The New York Times said buyout firms giants Thomas H. Lee Partners, Providence Equity Group and Kohlberg Kravis Roberts were in early discussions about launching a joint bid for the Denver-based MSO. The article, citing unnamed sources, said negotiations were in preliminary stages and a formal bid might never materialize.

Top MSOs Time Warner and Comcast are considered to be the likely high bidders for Adelphia, which agreed in September to offer up systems in seven separate clusters, ranging in size from 500,000 to 1.5 million customers.

So far, more than 50 interested parties have expressed interest.

“It would be the first material investment in cable in the U.S. by a private-equity company in a couple of years, at a time of unprecedented concern about the long-term competitive positioning of the industry,” Citigroup Smith Barney cable analyst Niraj Gupta said.

Adelphia would no doubt like to see competition against Time Warner and Comcast, to up the price, but Gupta said, “at some point, you can’t bluff the would-be buyer any higher.”

This is also an early stage of what’s expected to be a multiple-round process, he said.

Most private equity investors sold out of cable after the consolidation boom of the late 1990s. Providence Equity did back Bresnan Communications’s purchase of 314,000 subscribers from Comcast and joined a consortium that bought cable assets in Germany and the Netherlands for a total of $2.6 billion, both in 2003.

But Gupta noted, “Generally speaking, private-equity guys have really never been successful outbidding other entities when strategic companies are involved.”

The Times article also said Adelphia chairman and CEO William Schleyer could stay on to run the company should financial investors prevail.

Adelphia spokesman Paul Jacobson would not comment on the Times report. “We are committed to a fair and robust process designed to achieve the maximum value for the bankruptcy constituents,” he said. “No bidder, group of bidders or solution is being favored.”

Adelphia last week reached a preliminary agreement with unsecured creditors on the chance that the auction doesn’t attract a high enough price. Unsecured creditors would receive common stock in the newly emerged entity, based on an enterprise value of $17 billion and after deducting or reserving payments to bank lenders and other senior creditors.

Adelphia also pushed back the deadline for final auction bids to January from December.