Adelphia CEO Search On, With Schleyer on the List

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Adelphia Communications Corp.'s search for a CEO continues, with sources saying that soon-to-be ex-AT&T Broadband CEO William Schleyer may have moved to the front of the troubled MSO's list.

Schleyer — who had been a candidate for the job before, but had been thought not to be interested — moved up a few notches in the past few weeks as negotiations with the prior front-runner, Adelphia board member Rod Cornelius, broke down.

Cornelius, who had been vice chairman of Renaissance Cable Inc. and CableVision Industries Inc., had wanted the chairman's job at Adelphia, sources said last week. But that's a job current Adelphia chairman and acting CEO Erland Kailbourne wants to keep.

"His [Cornelius'] name is no longer on the list," said one source familiar with the company.

Sources stressed no decision was imminent.

Front-running trio

Since the odds of a deal with Cornelius became less likely, sources said Adelphia management turned attention to three possible alternatives: Schleyer; R&A Management CEO Kevin Allen; and former MediaOne Group Inc. and Cox Communications Inc. executive David Van Valkenburg.

But sources said negotiations have not yet begun with Allen or Van Valkenburg, and talks with Schleyer have hit a snag over which title the AT&T Broadband CEO would assume at Adelphia.

One source said last week that Kailbourne was reluctant to give up his CEO title — he serves as chairman and acting CEO — instead offering Schleyer the title of chief operating officer. Schleyer was not interested, those sources said.

Schleyer, through an AT&T Broadband spokeswoman, declined to comment. Cornelius did not return phone calls seeking comment.

Adelphia declined to comment on what it called rumor and speculation.

The calendar is working against the troubled Coudersport, Pa.-based MSO, which has said it would like to have a new CEO in place by the end of the year.

With Schleyer's current position at AT&T Broadband likely to disappear by the end of the month — when the AT&T Corp. unit is expected to complete its merger with Comcast Corp. — it appears he would be able to assume the CEO role at Adelphia quickly.

Schleyer would provide the high profile that Adelphia has apparently been looking for, and has years of operating experience under his belt at AT&T Broadband and Continental Cablevision Inc.

Stock falling

But Schleyer may have lost some cachet in the past several months, after failing to stimulate a dramatic turnaround at Broadband.

AT&T Broadband has lost more than 500,000 subscribers over the past four quarters, more than any other MSO in recent memory. Schleyer and his team also have failed to raise Broadband's cash-flow margin (cash flow as a percentage of revenue) to industry standards.

While Broadband's cash-flow margin improved from an anemic 16 percent prior to Schleyer's tenure, at 26.5 percent in the third quarter, it still remains far short of its industry peers, which produce margins of 35 percent to 40 percent.

Some industry observers point out that the poor results at AT&T Broadband are largely driven by the MSO's industry-trailing cable plant, as well as an emphasis on selling telephony service rather than video. Most agreed that snagging Schleyer would be a coup for Adelphia.

"Bill Schleyer: It doesn't get much better than that," said one source in the financial community.

Allen, who was an investment banker for eight years before taking the reins of Rifkin Associates — the predecessor of R&A Management — is no slouch either, and is said to be interested in the job.

At the height of its involvement in cable, Rifkin had 460,000 subscribers in large and small markets. Rifkin sold most of those systems to Charter Communications Inc. in 1999 for $1.5 billion.

Since then, Allen has kept busy with investments in other industries, but is itching to get back into cable, sources said.

Van Valkenburg has an impressive track record, and through his Denver consulting company — Balfour Associates — he already has a relationship with Adelphia. In July, Balfour was hired to counsel Adelphia cable partnerships located in Los Angeles and Western New York with respect to budgets and business operations.

Van Valkenburg could not be reached for comment.

Losses widening

Adelphia has plenty of other problems. Last week, the Coudersport, Pa.-based MSO reduced its cash-flow guidance for the year, primarily because it has been losing subscribers. And on Nov. 6, the company filed a lawsuit against its former auditors, Deloitte & Touche LP, blaming them for concealing the self-dealing arrangements of former company officers that led to the MSO's bankruptcy.

Adelphia lowered its full year 2002 cash-flow guidance to $1.1 billion from $1.3 billion, citing subscriber losses and the disruptive effects of its Chapter 11 bankruptcy filing.

In a U.S. Securities and Exchange Commission filing Nov. 5, Adelphia said the June 25 filing prompted the MSO to suspend practically all of its capital projects, including its rebuilds, and affected its ability to increase penetration of digital cable and high-speed-data service.

The bankruptcy also disrupted Adelphia's marketing programs, which affected customer retention and acquisition and allowed satellite competitors to increase marketing efforts targeted at Adelphia customers.

According to the SEC filing, equivalent business units fell to 5.37 million as of Sept. 30, from 5.45 million in June. Digital-cable subscribers rose to 1.69 million in September from 1.63 million in June. High-speed-data subscribers increased from 488,000 in June to 550,000 in September.

In the lawsuit, Adelphia charged that Deloitte facilitated the fraudulent behavior of the MSO's former founders, which led to its June bankruptcy filing.

Adelphia filed suit on Nov. 6 in the Court of Common Pleas in Philadelphia, charging that Deloitte should have known of the fraudulent behavior of Adelphia's founders, the Rigas family, and failed to inform the MSO's board of directors.

Adelphia filed for bankruptcy protection on June 25, after members of the Rigas family were alleged to have defrauded the company out of hundreds of millions of dollars.

In July, three family members — former chairman John Rigas, former chief financial officer Tim Rigas and former executive vice president Michael Rigas — were indicted, along with two other former company officers, on 24 counts of conspiracy, mail fraud, wire fraud and securities fraud.

The company claims Deloitte failed to provide Adelphia with independent, competent audits; failed to inform the MSO's audit committee of wrongful conduct by the Rigases; and violated its professional responsibilities and contractual obligations as Adelphia's independent auditor by failing to "disclose corporate abuses it knew and should have known were taking place."

In a statement, Adelphia said, "These wrongful acts resulted in billions of dollars in damages to the company — damages that were preventable if Deloitte had acted consistently with its professional responsibilities as Adelphia's outside auditor."

Adelphia is seeking compensation for all injury suffered as well as punitive damages.

Adelphia dismissed Deloitte on June 9. On June 14, the MSO said it selected PricewaterhouseCoopers as its independent accountants.

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