Adelphia By the Dozen?

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Upcoming bids for Adelphia Communications Corp.’s larger systems will likely be dominated by Comcast Corp. and Time Warner Cable, but smaller bidders such as Bresnan Communications, Cequel III and Patriot Media & Communications could enter the fray, too.

Adelphia is seen as likely to segment the 5.4 million customers into larger systems like Los Angeles and Florida and smaller clusters of 200,000 to 400,000 subscribers. It hasn’t spelled out those clusters, but Oppenheimer & Co. cable analyst Tom Eagan speculates on 12 separate units, ranging from Southern California (1.35 million customers) to Puerto Rico (147,000).

Other potential clusters: Southern New England (180,085 subscribers in Boston; Manchester, N.H.; Hartford and New Haven, Conn.); Upstate New York (229,247 subscribers in Albany-Schenectady-Troy; Burlington, Vt., and Plattsburgh, N.Y.; Syracuse and Utica, N.Y.); and Pennsylvania (1.2 million customers in Buffalo, N.Y.; Erie, Johnstown-Altoona, Pittsburgh and Wilkes Barre-Scranton, Pa.).

Eagan estimated prices ranging from $440 million (for Puerto Rico) to $5.797 billion for Southern California.

He said the likeliest bidders are the four biggest MSOs — Time Warner Cable, Comcast Corp., Charter Communications Inc. and Cox Communications Inc. — but smaller operators could join the party as well, seeking pieces as opposed to the whole.

Eagan predicts Comcast will likely be the lone bidder for Adelphia’s Southern New England cluster, the Baltimore-Washington, D.C. cluster (277,944 subscribers) and the Central-Northwest cluster (195,507 subscribers), where it already has a strong presence.

Comcast could have competition with Time Warner and Charter in the Southeast (262,922 subscribers); with Time Warner and Bright House Networks in Florida (579,256 subscribers); and with Time Warner and Cox in Southern California.

Time Warner is also expected to go after Maine, upstate New York and Ohio, where it already has strong existing properties.

Time Warner has long been expected to bid for Adelphia, having publicly expressed a desire to enhance its 10.9 million-subscriber footprint.

Even if the media giant makes a $4.5 billion to $4.6 billion all-cash bid for Metro-Goldwyn-Mayer Inc., that wouldn’t take them out of the bidding.

“I think [Time Warner] can [still bid],” Eagan added. “I just don’t think they can bid as much as they could have without having made that [MGM] bid.”

He estimates Adelphia could raise about $18 billion in the auction, suggesting an average price per subscriber of $3,630.

Larger metropolitan clusters, like Southern California (including Los Angeles and San Diego), would attract higher valuations.

Eagan pegs Southern California at $4,276 per subscriber and Florida attracting $2.23 billion, or $3,850 per subscriber.

Smaller operations like Maine ($3,205 per subscriber), Upstate New York ($3,206 per subscriber) and Puerto Rico ($2,993 per subscriber) would attract lower valuations.

SIMMONS STEPS UP

So far, among smaller operators, only Patriot Media has publicly expressed interest in joining the auction, although others have strong financial backing and a taste for expansion.

Patriot Media bought RCN Corp.’s cable systems in the Princeton, N.J., area, with about 80,000 customers, for $245 million in 2003. Backing came from Boston investment banker Spectrum Equity Investors.

“We’re going to actively pursue buying a piece of Adelphia,” Patriot chairman Steve Simmons said in an interview. “We are geared up to do bidding on Adelphia. It’s more than just a passing interest.”

While Patriot paid about $3,600 per subscriber (including upgrade costs) for the RCN systems, Simmons would not comment on what price the smaller Adelphia clusters would attract.

“We don’t know what the blocks will be yet,” he said. “We’re nowhere near that point of setting a price.”

Spectrum has the financial muscle to do a sizeable deal: It has about $6.5 billion in assets under management. “We certainly have the financing to buy anywhere from 400,000 to 1 million subscribers,” Simmons said.

Of the Adelphia systems he might seek, Simmons added: “Their geographic proximity to our systems in New Jersey doesn’t necessarily mean anything.”

BRESNAN AND CEQUEL

Bresnan Communications, headed by cable veteran Bill Bresnan, is also reportedly interested in some Adelphia properties in Colorado; and Cequel III, headed by former Charter CEO Jerald Kent, is also said to be looking into doing a deal.

Bresnan backer Providence Equity Group, which is big in international cable, has about $5 billion in assets. Providence backed Bresnan’s $525 million acquisition of 314,000 subscribers in Montana, Wyoming, Colorado and Utah from Comcast last year.

Bresnan spokeswoman Maureen Huff declined to comment specifically on Adelphia.

“We are always looking to grow where it makes financial sense,” she said.

Cequel III has also been aggressive. After joining a consortium to buy bankrupt Classic Communications Inc. in 2002, Cequel formed Cebridge Connections, which now has about 480,000 subscribers, mainly in rural areas.

Cebridge and Cequel III spokesman Pete Abel would not comment on specific plans but said there’s interest in strategic acquisitions “that fit within our larger business strategy that would be synergistic with our current portfolio.”

“But we have not yet received detailed information on the Adelphia properties, the bidding hasn’t even started and therefore it would be premature for us to comment specifically about the Adelphia properties.”

Cequel’s partners in the Classic deal were Oak Tree Capital Management and Goldman Sachs Partners.

ROOM FOR MANY?

Although the field could get crowded for Adelphia’s smaller systems, Simmons said that he believes there is room for everyone.

“Adelphia is large enough to accommodate different buyers,” Simmons said. “The more cable companies we have in the industry, the better off the industry as a whole will be.”

Immediately after Labor Day (Sept. 6), prospective bidders were expected to sign confidentiality agreements to allow them to begin due diligence. Adelphia has said it expects bids to come in around October and November, and a final decision could be made in late December or early 2005.

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