After a series of delays, the Rigas family, which controls Adelphia Communications Corp., has agreed to buy Daniels Cablevision Inc., a system in Carlsbad and Desert Hot Springs, Calif., from the estate of cable pioneer Bill Daniels.
Adelphia will operate the 60,000-subscriber system, but its owner will be Highland Carlsbad Cablevision Inc., a closely held company controlled by Adelphia chairman John Rigas and members of his family.
The MSO was supposed to close the deal several months ago. It was put on the back burner, however, as Adelphia concentrated on two larger acquisitions-its $1.5 billion purchase of Cablevision Systems Corp.'s Cleveland operations and its $860 million acquisition of GS Communications Inc. Those deals have not been finalized, but are expected to close during the fourth quarter.
The Rigases may have moved slowly because Moody's Investors Service downgraded Adelphia's corporate debt last month. The bond-rating agency said the MSO "has placed notably greater financial strain on its balance sheet over the past year by continuing to effect acquisitions at increasingly higher purchase prices per subscriber with predominately debt financing."
Pressure on the debt markets may have forced the Rigas family to make the acquisition through Highland rather than Adelphia, said UBS Warburg LLC group head for wireline telecom, cable TV and Internet/data Aryeh Bourkoff.
"The Rigas family is demonstrating it continues to believe in the value of high-quality cable systems and it also recognizes that in this market, it would be difficult to finance at higher valuations," Bourkoff said. "In a better market, the company would have preferred to finance through the Adelphia entity."
Bourkoff said Highland is likely to pay Adelphia a management fee for running the systems, probably equal to 5 percent of Daniels Cablevision revenue.
Adelphia would not disclose the purchase price of the Daniels system, but it has been rumored at about $6,200 per subscriber, which would put the total sales price at $370 million.
Bourkoff estimated the deal was done at $5,000 to $6,000 per subscriber.
One industry observer said the high price was probably the main reason for purchasing the Daniels system through Highland. Because Highland is not a publicly traded company, the Rigases will not have to disclose the purchase price in securities filings.
The Daniels systems are said to be well run and in excellent shape, which would help account for their high price. On average, cable systems have been selling for $4,500 to $5,000 per subscriber.
Adelphia was one of several bidders; others reportedly in the running were Cox Communications Inc., Time Warner Cable and Comcast Corp.
Carlsbad is about 31 miles north of San Diego and 86 miles south of Los Angeles. Desert Hot Springs is about 110 miles east of Los Angeles.
Adelphia has more than 1 million Los Angeles-area subscribers it acquired through its $5.2 billion purchase of Century Communications Inc. last year.