Cable Operators

Comcast, Time Warner Clear Way for Adelphia Bid

9/27/2004 3:59 AM Eastern

Comcast Corp. and Time Warner Inc. said Monday that they are discussing a possible joint offer to acquire bankrupt MSO Adelphia Communications Corp., Reuters reported, and a deal between the two parties announced earlier Monday might help to pave the way.

Time Warner spokeswoman Tricia Primrose Wallace confirmed that the company is "working with Comcast in exploring a potential transaction with Adelphia."

Adelphia announced last week that bidders for its 5.4 million subscribers will have their pick of seven different geographic clusters, and it will accept bids on any combination of the seven clusters.

Adelphia valued its assets at more than $17 billion.

In the agreement announced earlier Monday by Comcast and Time Warner, Comcast will lower its effective overall interest in Time Warner Cable from approximately 21% to 17% in exchange for stock of a subsidiary that will hold cable systems and cash.

Comcast trusts currently own an effective interest of about 21% in Time Warner Cable, held through a 17.9% common-stock interest in the MSO and a 4.7% limited partnership interest in Time Warner Entertainment Co. LP, a subsidiary of Time Warner Cable.

Comcast was granted an option -- which can be exercised between Dec. 1 and April 1 -- to require Time Warner Cable to redeem a portion of its common stock held by the Comcast trust in exchange for 100% of the common stock of a Time Warner Cable subsidiary.

If Comcast exercises the option, it will reduce the trust's effective interest in Time Warner Cable's business to approximately 17% -- a 13.7% common-stock interest in Time Warner Cable and a 4.7% limited-partnership interest in TWE.

At the time of exchange, the subsidiary will own cable systems serving about 90,000 basic subscribers and approximately $750 million in cash.

In addition, the Comcast trust agreed not to request prior to April 1 that Time Warner Cable register its shares held by the trust for sale in a public offering.

UBS Warburg LLC analyst Aryeh Bourkoff said in a research note that the arrangement could set the stage for “joint asset acquisitions” by the top two U.S. MSOs.

According to Reuters, analysts envision a scenario in which Time Warner buys clusters of Adelphia subscribers, then swaps some of them to Comcast in order to unwind Comcast's remaining stake in Time Warner Cable.

"This lays the tracks for Time Warner to really take the lead on Adelphia in the bidding process," Tradition Asiel Securities Inc. analyst Paul Kim told Reuters.

A source familiar with the companies' thinking said it was thought that a joint bid -- which presumably would include properties neither company would bid on separately -- could appeal to Adelphia due to its size and scope.

Bourkoff added that Comcast is required to divest the 21% Time Warner Cable stake as part of federal approval of its AT&T Broadband acquisition, and this transaction “would also demonstrate Comcast’s good faith in working toward divesting” that stake.

Assuming a range of $3,500-$4,000 per subscriber for the cable assets involved, the deal values the 4% stake in Time Warner Cable at $1.07 billion-$1.11 billion, Bourkoff said.

“Today's announcement is another example of our working closely with Comcast to reach a mutually beneficial outcome to the business matters facing our companies,” Time Warner Inc. chairman and CEO Dick Parsons said in a prepared statement.

“For our part, if Comcast chooses to exercise its option, we'll have the opportunity to increase ownership of our cable company based on a mutually attractive valuation,” he added. “I look forward to continuing this productive relationship with Comcast.

Comcast chairman and CEO Brian L. Roberts added, “As we have stated from the beginning, it has always been our plan to dispose of our stake in Time Warner Cable expeditiously. This agreement marks an important step toward completing that goal efficiently, while also maximizing value for our shareholders.”

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