Court Approves Schleyer, Cooper Pacts

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New York— Despite sometimes heated objections from Adelphia Communications Corp.'s equity shareholders committee, U.S. Bankruptcy Court Judge Robert E. Gerber last week approved the three-year, $40 million employment contracts of Adelphia chairman and CEO William Schleyer and chief operating officer Ron Cooper with very little modification.

In a decision issued March 4, Gerber said Adelphia's pressing need for senior management outweighed any objections from the equity committee, headed by one of Adelphia's largest shareholders, Leonard Tow.

But he did allow one concession to shareholders — removing a "good reason" clause in Schleyer's contract that would have allowed him to leave Adelphia if the MSO elected to name another individual as chairman. Adelphia would have also been required to pay Schleyer $7.6 million.

Gerber, in his decision, wrote that that provision would have been a "disincentive."

Cooper's contract was approved without modification.

The work ahead

For Schleyer, the task at hand is now to turn around Adelphia's troubled operations. Mired in bankruptcy since June, the MSO has been virtually rudderless, with no senior management with extensive cable experience, a shrinking subscriber base, murky financial results and antiquated plant.

In a prepared statement issued shortly after his contract was approved, Schleyer said rebuilding Adelphia would be both a "complex challenge" and an "extraordinary opportunity." In his court testimony, he added that he believed no two individuals were better suited for the job than himself and Cooper.

That raised some eyebrows on the equity committee, which pointed out that in their year as CEO and COO of AT&T Broadband, Schleyer and Cooper had only modest success.

At AT&T Broadband, Schleyer and Cooper managed to boost the cash-flow margin — cash flow as a percentage of revenue — to about 25 percent from 16 percent, well below the industry average of 30 percent to 40 percent. AT&T Broadband also lost about 500,000 subscribers during Schleyer's watch.

But the two men were in a different situation at AT&T Broadband. Sources familiar with the situation said that Schleyer and Cooper were hamstrung by the vast bureaucracy at AT&T, and that the Denver MSO was in much worse shape than originally thought.

Those same observers pointed to Comcast Corp.'s impressive fourth-quarter results — subscriber losses were stemmed to about 9,000 during the quarter, instead of the 129,000 most analysts expected — and said at least some of that success should be attributed to initiatives begun by Cooper and Schleyer.

Comcast bought the AT&T systems in November.

At Adelphia, Schleyer and Cooper will face some of the same issues. Adelphia lost about 100,000 subscribers between June and September, the latest figures available.

In bankruptcy court testimony, it was also revealed that Adelphia would lower its 2002 cash flow by $102 million because of accounting changes. Last November, Adelphia reduced its 2002 cash-flow guidance from $1.3 billion to $1.1 billion, citing subscriber losses and the disruptive effects of its Chapter 11 bankruptcy filing.

Disruption cited

In a Securities and Exchange Commission filing Nov. 5, Adelphia said its June 25 Chapter 11 filing caused a suspension of practically all of the MSO's capital projects, including rebuilds, and affected its ability to continue to increase penetration of digital 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.

It may be a while before Schleyer's ultimate plans are revealed: Adelphia is scheduled to submit a reorganization plan to the bankruptcy court April 21, but have asked for more time.

Schleyer's first order of business appears to be to beef up the management team.

In a joint statement released shortly after their contracts were approved, Schleyer and Cooper said their new management team would be "comprised of old and new faces, capable of leading our effective and efficient restructuring effort."

It is expected that some of those appointments could come in the next few weeks.

Sources in the financial community have guessed Adelphia could attract some former AT&T Broadband and Tele-Communications Inc. executives, such as former TCI Atlantic division COO Bill Mitchell and former senior vice president of programming Allan Singer.

Singer, who lives in Denver, has been saying privately for months that he would join Adelphia, according to sources.

Others point out there is a plethora of cable talent in the Denver area, where Adelphia expects to move its headquarters within the next six months.

"They've got a lot of resumes to pick from," said Brian Deevy, president of Denver cable investment banker Daniels & Associates. "They will have the pick of whoever they want."

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