News

Daniels Estate Weighs Adelphia Options

11/01/2008 8:00 PM Eastern

The estate of late cable pioneer Bill Daniels has withdrawn a $456 million lawsuit against Adelphia Communications Corp., but has left the door open for future legal action.

Last year, the Daniels estate agreed to sell two Daniels Cablevision-owned cable systems — in Carlsbad and Desert Hot Springs, Calif. — to Highland Carlsbad Cablevision Inc., an entity controlled by the Rigas family, Adelphia's majority shareholders. Some observers pegged the deal at about $6,200 per subscriber.

But according to a lawsuit filed March 30 in U.S. District Court in Denver, Adelphia itself was among those that signed off on the transaction.

The MSO agreed to buy the 59,000-subscriber Carlsbad system for $410 million (a record $6,879 per subscriber) and the 7,800-home Desert Hot Springs system for $30 million (or $3,856 per subscriber). Working-capital adjustments brought the final price to $456 million.

According to the suit, Adelphia began negotiating for the Daniels systems back in May, when representatives of the company flew to California to hammer out a deal.

By mid-July, Adelphia and the estate had reached an agreement with respect to the systems. However, at Adelphia's request, Daniels representatives agreed to postpone the execution of that pact until Sept. 30.

But after the agreement was executed on that date, Adelphia appeared to have a change of heart.

According to the suit, Adelphia had failed to forward necessary documentation and information to Daniels for the past two months. Adelphia's attorneys also refused to participate in two scheduled conference calls on March 7 and March 13 to discuss the closing, the suit said.

While that should have signaled that Adelphia was having second thoughts, Daniels continued to provide documents to Adelphia to prepare for the closing, scheduled for March 30. Adelphia representatives never showed up.

H. Dewitt Mitchell, a representative of the Daniels estate, filed suit that same day. On April 3, however, he asked the court to dismiss the case "without prejudice," which means the company would still have the right to file a similar suit at a later date. The court granted that request on April 4.

The speed at which the Daniels estate withdrew the suit had some observers speculating that Adelphia and the estate have resumed negotiations and the MSO is trying to wrangle a lower price.

The price of the Carlsbad system far exceeds the previous record for a cable deal, set by Cox Communications Inc.'s 1999 purchase of Media General Inc. systems in Northern Virginia for $5,400 per subscriber. Although the Daniels systems were thought to be in good shape and have an excellent customer-service record, the market for cable systems just isn't what it was a year or two ago, when industry consolidation was at its peak.

"My belief would be that they are having amicable negotiations trying to resolve the issue," said UBS PaineWebber high-yield cable analyst Aryeh Bourkoff. "An easy way to determine what the valuation metrics should be in cable nowadays is to see some of the recent transactions in the equity markets. Operators have been selling equity and valuations are $4,500 to $5,000 per subscriber."

The Daniels estate had asked for unspecified damages or a court order that would force Adelphia to consummate the deal.

Terence Gill, a Denver attorney that represented the Daniels estate in the matter, referred all comments on the suit to Daniels Cablevision. Company spokesman Phil Urbina said Daniels Cablevision does not comment on litigation.

Officials at Adelphia did not return calls for comment.

At press time, it could not be determined whether the Daniels deal had closed. Some observers believe that Adelphia's reluctance to forward information may have been another negotiating ploy.

This is the second lawsuit filed regarding Adelphia and a pending cable acquisition. In March, Adelphia dropped a suit against GS Communications Inc. that would have scrapped their $750 million deal.

Adelphia later closed the acquisition of the GS systems, but at a lower price.

March