Rigases Surrender at Adelphia

Updated from 12:37 p.m. EDT

Shares in Adelphia Communications (ADLAE) plunged anew Thursday afternoon, more than a week after trading in the troubled cable operator was suspended.

The stock opened at 12:30 p.m. EDT and quickly slid 65% to $2 before recovering slightly to trade down $3.30 at $2.40. With the latest fall the stock has lost nearly 90% of its value since the company's March 27 disclosure of related-party liabilities tied to the founding Rigas family.

The resumption of trading promises comes on the heels of a Thursday morning announcement that the Rigas family was ceding control of the board, the executive suite and its majority shareholder voting control. The family also agreed to transfer $1 billion in family-held assets to Adelphia, and the company increased its estimates of related-party debt liability.

Believers?

To listen to some observers, the early selloff in Adelphia won't be the worst of it. One buy-sider who's short the stock said he believed that most of the early Adelphia buyers will be investors covering short positions or "guys who really believe."

While it appears that the departure of the Rigas family, as well as the family's agreement to transfer assets to the company worth $1 billion, are both positive developments for the stock, other unknowns remain, says the short-seller. Those dark areas make it difficult to predict whether the company will be able to avoid filing for bankruptcy protection -- a move that would likely wipe out any value for equity holders in the company.

The contributed assets don't cover the additional debt Adelphia has put on its books to reflect borrowings made by the Rigases, says the short-seller; it's also unclear whether Adelphia, which has already missed payments to debtholders, has the liquidity to satisfy obligations to its lenders and to fund operations.

"It should be interesting," said the short-seller. While the buy-sider says he has a "gut feeling" that Adelphia will file for Chapter 11 bankruptcy protection, he says that the company's bonds have a more promising future than its stock. "Quite frankly, I think bonds, from these levels, are going to be good investments," he said, though he said he doubted his firm would be investing in them.

Setting the Record Straight

The moves by the Rigases came as independent directors investigating Adelphia moved to set the record straight on Adelphia's financial condition and restore confidence in the faltering company.

The Rigas family's stewardship of Adelphia has come under increasing scrutiny in the two months since the company reported a number of previously undisclosed and potentially costly co-borrowing arrangements with the Rigases. The stock had lost two-thirds of its value since March 27 before it was halted earlier this month by Nasdaq, pending additional information.

In recent months the company has failed to file its annual report, been named as the target of various regulatory and criminal probes, and put much of its subscriber base on the auction block in an effort to raise needed cash; last week Adelphia missed some interest payments, raising the specter of default.

Last week the company's founder and longtime CEO, John J. Rigas, stepped down in an effort to right the sinking ship; his son, Tim Rigas, the financial chief, stepped down a day later. But with Adelphia up to its eyeballs in debt and the Rigas family continuing to control most of the company's voting stock as well as a majority of the board, investors weren't impressed by last week's Rigas resignations.

Thursday, though, the Rigases gave up four of their five board seats, and the outside directors passed a resolution calling for the last Rigas representative to give up his seat as well. The family also agreed to put its 20% stake in the company, which carries 60% voting weight, in a trust, effectively removing the Rigases from control.

Meanwhile, the independent board offered details of the company's financial situation, which has looked increasingly bleak in recent weeks. But observers say Adelphia has valuable assets and that once the company is out from under the cloud of Rigas leadership it may be able to find a way to restructure and go forward without being pushed into insolvency.

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