Sources: Subs Are Off Block

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While Adelphia Communications Corp. scrambles to clear up the ever-mounting problems surrounding its off-balance sheet debt, one option that could have helped the company raise considerable cash appears to be off the table.

According to several sources, Adelphia's plan to sell systems with 2.75 million subscribers — including operations in Los Angeles, Florida and the Southeast — has been pulled back.

In April, Adelphia hired four investment bankers to investigate its options, including systems sales. They were Salomon Smith Barney Inc., Credit Suisse First Boston, Banc of America Securities LLC and Daniels & Associates.

According to sources familiar with the situation, Salomon Smith Barney Inc. pulled the properties off the market after potential bidders refused to sign a non-disclosure agreement.

In a prepared statement, Adelphia said it was still pursuing the systems sales.

Adelphia director of investor relations Karen Chrosniak did not return a phone call seeking further comment.

According to these sources, while non-disclosure agreements are commonplace in systems auctions, Salomon required that potential bidders also sign a standstill agreement that would prohibit them from making a bid on Adelphia as a whole.

"MSOs were reluctant to sign it," said one source familiar with the matter.

Analysts had estimated that the systems sales would attract between $9 billion and $11 billion in cash. Possible bidders included Charter Communications Inc., Cox Communications Inc. and AOL Time Warner Inc.

Last week — at AOL Time Warner's annual meeting — when asked if he was interested in purchasing the Adelphia systems, CEO Richard Parsons alluded that the systems were no longer for sale.

"It's not clear what exactly is going on," Parsons said. "Clearly, Adelphia has attracted interest. Whether and how it plays out, I don't know yet.

"You would have to speculate on what's going to happen. The last I heard is that they pulled the books back."

Two potential bidders who asked not to be named confirmed that Salomon had included a standstill clause in its nondisclosure agreement, stipulating that bidders would not try to go after Adelphia as a whole. The bidders added that it is one reason they decided not to get involved in the process.

"We were close, but that [standstill] agreement was one of our issues," the potential bidder said.

It was a standstill clause that held up the auction for AT&T Broadband last year, after Comcast Corp. — which eventually won the bidding — refused to sign AT&T's non-disclosure agreement.

Comcast had mainly objected to portions of the agreement that prohibited it from taking on partners in a bid for Broadband and from launching a proxy fight for the entire company should it lose out.

Comcast and AT&T eventually reached a compromise and Comcast signed the agreement last September, after modifications were made in its language.

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