Adelphia Deal Is Complicated

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While Adelphia Communications Corp. management and creditors have apparently made their choice, the MSO’s sale remains on hold pending court approval.

U.S. Bankruptcy Court Judge Robert Gerber needs to determine whether a $17.6 billion-$18 billion bid from Time Warner Inc. and Comcast Corp. met his criteria for making as many Adelphia creditors as possible whole. And Cablevision Systems Corp. was said to be mulling whether to increase its last-minute, $16.5 billion cash bid.

Late last week, sources said Adelphia submitted the Time Warner-Comcast bid to the court for approval, creditors and Adelphia management having already given the plan thumbs-up.

In that deal, sources said Adelphia would receive $12.5 billion in cash and the rest in Time Warner Cable stock.

Sources said Gerber could decide whether to approve the Time Warner-Comcast bid within 7-10 days of receiving it April 7.

Time Warner would construct the transaction as a “reverse merger,” or reverse initial public offering, with assets from the acquiring company folding into the acquired company’s (Adelphia’s) publicly traded structure.

In a research report, Merrill Lynch & Co. media analyst Jessica Reif Cohen Monday estimated that Time Warner would end up with 84% equity interest in the combined cable company, with the rest going to creditors and the public.

The $12.5 billion in cash would go toward retiring Adelphia’s $8.2 billion debtor-in-possession financing, which Reif Cohen assumed would be refinanced and rolled into the new entity.

Comcast -- which is contributing about $2 billion in cash and its 21% interest in Time Warner Cable -- would receive about 2 million cable subscribers in return.

Sources familiar with the auction process said the cable-system swaps will involve a mixture of Adelphia, Time Warner Cable and Comcast properties and will be conducted in several separate transactions, mainly for tax reasons.

“There will be multiple transactions, all unrelated to each other, to make sure that all of the tax arguments are as strong as they can be made,” one source familiar with the process said. “It makes for a very complicated transaction because of that.”

Time Warner, Comcast and Adelphia declined to comment.

Lurking in the shadows, however, is the possibility that Cablevision could increase its offer, made around April 5, for $16.5 billion in cash.

While Cablevision was reportedly mulling whether to up its bid -- it is expected to make a decision this week -- people in the Time Warner-Comcast camp remained confident that their deal would prevail over Cablevision’s late bid.

Analysts also dismissed some speculation that Cablevision could offer to drop out of the bidding in return for carriage for its Voom HD channels.

“I’m going to put $16.5 billion at risk to get carriage for the Museum Channel? I don’t quite understand that,” said one analyst, who asked not to be named.

Cablevision also declined comment.

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