Bidders for Adelphia Communications Corp. might have to wait as long as two months before a winner in the much-anticipated auction is determined, sources familiar with the process said last week.
Adelphia closed bidding on its 5.2 million subscribers on Jan. 31. Time Warner Inc. and Comcast Corp. have made a bid for the entire company for about $17 billion, sources said.
Private equity giants Kohlberg Kravis Roberts & Co. and Providence Equity Partners also made a bid for all of Adelphia, estimated to be worth between $15 billion and $16 billion. About five other smaller MSOs have bid on specific parts of the company, including Patriot Media & Communications, Atlantic Broadband, Advance/Newhouse Communications, Cequel III and Bresnan Communications.
Adelphia has said in the past that it did not expect to pick a winner, if there is one, until sometime during the first quarter. While some participants had believed that meant a winner could be picked in February, others are saying now that it might be well into March until Adelphia makes its final decision.
According to one source with knowledge of the situation, Adelphia has extended the period that bids will be left open beyond the 30 days originally requested.
Mark Thomas, a partner in the Chicago law firm Jenner & Block and a bankruptcy specialist, said keeping the bids open for a fixed period is not unusual in bankruptcy auctions. He added that time is built in so that the seller can analyze each bid with respect to price, contingencies, holdbacks and other terms that may be detrimental to the seller. Certain terms might be left in if the price is increased.
“There might be some provisions in the agreements that might be bad for the seller, even though the purchase price seems the highest price,” Thomas said. “Speed and certainty of closing are important. A seller wants the opportunity to go back and forth to these various bidders while their bids are open and see whether or not they’re willing to change or modify certain terms and conditions of their bids.”
One source with knowledge of the bidding process said that he expected the evaluation to last at least 60 days. But the source added that extra time is not necessarily a ploy to get bidders to raise their offers, but is more of a reflection of the complexity of the auction process.
“This is not like a normal bid where you would put a much shorter fuse on it, because you’ve got so many other constituents that you’ve got to satisfy here,” the source, who requested anonymity said.
One of those constituents is W.R. Huff Asset Management president William Huff. One of Adelphia’s largest bondholders, Huff said earlier in November that he would block any offer for all of Adelphia’s assets under $17.5 billion. And last week, sources familiar with the auction process said that Huff was actively seeking financial partners to launch his own bid for Adelphia.
Huff did not return calls for comment.
Whether or not Huff could block a sale remains to be seen. While Huff heads up the unsecured creditors committee, he has never publicly disclosed just how much of the MSO’s debt his company owns. Huff got involved in Adelphia shortly before it declared bankruptcy, buying up the MSO’s bonds at then-bargain prices.
As one of the largest bondholders, Huff could stand to make out well in the event Adelphia decides not to sell and instead emerges from bankruptcy intact. Bondholders usually end up with the bulk of the equity in the newly emerged entity in such an event.
But making a bid on his own could prove trickier.
Thomas said that typically in bankruptcies, anybody can bid on any assets that are up for sale. However, if a member of a creditor’s committee submits a bid, there is the possibility of a conflict of interest.
Thomas said that creditor committee members usually sign confidentiality agreements as members of that committee.
“If you are a member of an official committee of creditors, you may receive non-public, confidential information pursuant to confidentiality agreements. The confidentiality agreement you sign as a committee member will govern what you can do and what you can’t do with information you receive,” Thomas said. “Sometimes committee members are restricted from trading stock or debt and sometimes they’re not.”
Thomas added that a second possible conflict arises when a bidding committee member attempts to sit in on a committee meeting held to review bids that are submitted for the assets.
“If a committee member is going to bid, they will be recused when the committee itself considers the competing bids,” Thomas said. “The bidding committee member won’t be able to sit in the meeting and argue that its bid should be supported for whatever reason nor will they be able to argue that a competing bidders bid should be ignored or discounted for other reasons.”
According to a report in The Wall Street Journal last week, Adelphia’s creditors tried to obtain the right to view bidding information in a closed bankruptcy court hearing earlier this month. But U.S. Bankruptcy Court Judge Robert Gerber ruled that lawyers and financial advisers for Adelphia’s unsecured creditors committee and its equityholders committee will be allowed to view bid documents, not the actual committee members.