Adelphia Communications Corp. is attempting to block a move by its equity shareholders committee to hire a sixth professional adviser, claming the committee is playing fast and loose with the bankrupt MSO's cash.
In a document filed with the U.S. Bankruptcy Court for the Southern District of New York on March 25, Adelphia claimed that the equity committee's request to hire Kagan Media Appraisals is unnecessary. The MSO is paying the unit of Carmel, Calif.-based Kagan Group $150 to $600 per hour for expert analysis and testimony regarding the valuations of Adelphia's business, as well as valuation trends in the cable industry.
Kagan would also charge a minimum of $6,000 per day when any testimony is proffered, regardless of how much time spent in court.
According to the document, the equity committee has already hired five separate experts at a cost of $730,000 per month. That includes $150,000 per month to Saybrook Restructuring Advisors, which Adelphia claims would provide the same services as Kagan. Saybrook was hired to provide valuation analysis of Adelphia's businesses and related expert testimony, according to the filing.
"There is no justification for the equity committee to be incurring professional fees at anywhere near the current rate," Adelphia said in the filing, adding that the committee has spent the operator's funds "with reckless abandon."
The equity committee is led by Citizens Communications Inc. chairman Leonard Tow, one of Adelphia's largest individual shareholders. When he owned Century Communications Corp., Tow was considered by many in the cable business to be one of its most frugal operators.
Norman Kinel, one of the New York-based attorneys for the equity committee, said that the group plans to file a response to the Adelphia objection later this week. The fees Kagan would charge are at or below market rates, he added, and the debtor's objections are baseless.
Debtors and creditors' committee have spent far more on professionals and expert witnesses, said Kinel. Although he did not have an exact figure, Kinel said the fees generated by those professionals are "many multiples of what we have been generating."
Kinel added that one Adelphia expert witness — executive compensation analyst Pearl Meyer — was paid $950 per hour for her services.
Kinel also defended the equity committee's hiring of Kagan Media, adding that their expertise will be used in conjunction with the committee's motion to hold a shareholders meeting to appoint a new board of directors. He said Adelphia is trying to block that meeting, claiming the company is insolvent and therefore the equity committee has no corporate governance rights.
Adelphia has already presented an expert report to back up that claim of insolvency, Kinel said.
"We need to defend our position," Kinel said. "Kagan being the recognized authority that it is in the field, is needed to provide additional assistance. Saybrook is our general financial adviser in the case as a whole.
"In no way will what Kagan is doing be duplicative of what Saybrook is doing or has done. This is really just a litigation tactic [by Adelphia]."
The dispute with the equity committee comes just days after former Adelphia chief financial officer Christopher Dunstan alleged the company tried to stop him from further investigating some questionable transactions with a company director.
In a Securities and Exchange Commission filing made late March 21, Adelphia said that Dunstan claimed in a March 17 resignation letter that the cable operator failed to disclose the transactions with the board member, and that it allegedly discouraged him from making such allegations.
Dunstan did not identify the board member in his letter, nor did he disclose the nature of the transactions.
Sources familiar with the matter said Dunstan's allegations relate to stock options awarded to an independent board member in the late 1990s, before that person was a member of the board. The source declined to identify the board member, but said that he remains on the board of directors.
Adelphia had begun negotiations with Dunstan about a separation on March 6, according to the SEC document. He officially resigned March 21, the same day Adelphia hired a new CFO, former 360Networks Corp. CFO Vanessa Wittman.
Adelphia said in the SEC document that it launched an inquiry into Dunstan's allegations in February and concluded the factual investigation in early March.
"Based on the information that it has received to date, the company expects to conclude that the actions by the director in question do not rise to a level of materiality or importance to the company's security holders so as to require disclosure at this time," Adelphia said in the filing. "The company intends to investigate the remaining allegations contained in Mr. Dunstan's letter."
Denver move hit
In an unrelated filing, former Adelphia chairman John Rigas objected to Adelphia's planned headquarters move to Denver, claiming the relocation is being made solely for the convenience of the MSO's new chairman and CEO, William Schleyer, and president and chief operating officer, Ron Cooper.
In a document filed March 25 with the bankruptcy court, Rigas and his three sons, Timothy, Michael and James, said the Denver move would cost at least $10 million and is unnecessary because most of Adelphia's cable systems are located in the Northeast, near the company's current Coudersport, Pa., headquarters. The equity committee has also objected to the move.