Adelphia Eyes Huge Reorganization
Adelphia Communications (ADELQ) filed a plan Wednesday to emerge from Chapter 11 by the end of 2004, with the help of what the company says is the largest bankruptcy-exit financing ever.
But though management strongly hints that current Adelphia shares will be worthless after the reorganization, shares in Adelphia rose Wednesday. That's a signal that some Adelphia shareholders haven't given up hope on their attempt to force a selloff of Adelphia's systems -- a plan, they say, that would provide "considerable value" to current stockholders.
The reorganization news out of Adelphia comes two days after jury selection began in the fraud trial of several former Adelphia executives, including chairman and founder John J. Rigas and two of his sons.
It also serves as a reminder that, though the Rigas family may be accused of looting the cable operator, inflating its subscriber count and overstating the quality of its infrastructure, what remains of Adelphia is substantial indeed. As part of Wednesday's filing, management disclosed that investment bankers at Lazard Freres had assigned a value to the company of $17 billion, excluding subsidiaries it doesn't control.
The financing package "gives us what we need to be a stand-alone company, independent and growing very rapidly," current Adelphia CEO William Schleyer said in a Wednesday conference call.
Adelphia's 5.4 million subscribers -- including about 300,000 claimed through the minority interests -- make it the fifth-largest operator of cable systems in the country. That size, combined with a management team that doesn't fit the cable industry tradition of an entrenched family-led management -- of which the Rigas family had been a prime example -- has led to the observation that Adelphia, upon emergence from bankruptcy, is an obvious takeover target.
On a conference call with analysts Wednesday, Schleyer declined to answer a question about what anti-takeover provisions, such as a poison pill or staggered director elections, the company might put in place. Schleyer said that any such measures would be disclosed in the bankruptcy emergence process.
Adelphia's shares were quoted at 44 cents Wednesday, up a penny. Other than the hope of finding a greater fool to purchase such shares, perhaps what's holding the stock up is a bet that some benefit will accrue to current shareholders if they are able to formally propose their rival asset-sale plan.
Under the terms of management's plan announced Wednesday, certain creditors, including banks that lent money to Adelphia before its 2002 bankruptcy filing, are slated to be paid 100% of their claims in cash. Other creditors will receive preferred stock in Adelphia, new common stock or an interest in a trust that's seeking to recover money from lawsuits filed against the Rigas family, Deloitte & Touche (Adelphia's former auditor) and financial institutions involved in the loans that led to the Rigas ouster. These enabled Adelphia and the Rigas family to borrow money under the same arrangements, but left Adelphia on the hook for any debts the Rigases were unable to pay.
Common shareholders will get a piece of that lawsuit money under the current plan, but only after creditors sharing that pot are paid in full, Schleyer said Wednesday. That would require recovery of "well north of $3 billion" from the lawsuits, he said.
A committee of shareholders says they would get more money through an asset sale, benefiting from a soaring market for cable stocks and a likely premium to public-market prices. Schleyer said Wednesday Adelphia hasn't received any formal or informal offers for the company, and said the company would fight the shareholder committee's attempt to propose its rival plan.
The exit financing package announced Wednesday includes a $3.3 billion bridge loan and $5.5 billion in senior secured credit facilities, including a $750 million revolving credit facility. The company says it expects to have $8 billion in debt at the time it emerges from bankruptcy.
The $17 billion valuation, which Adelphia says was based on a discounted cash flow model, public market valuations of other cable operators and recent private transactions, implies an average value of $3,333 for each of Adelphia's 5.1 million non-minority interest subscribers.
That per-sub figure -- a common though unscientific industry yardstick -- falls in the middle of the range of per-sub values ascribed to other major publicly traded cable operators. For example, earlier this week Credit Suisse First Boston cable analyst Lara Warner calculated that, based on current stock prices, per-sub values ranged from about $2,500 at the low end, for
Mediacom
(MCCC)
, to more than $4,500 for New York-based
Cablevision
(CVC)
.
Comcast
(CMCSA) - Get Report
, the nation's largest operator of cable systems, came in above $3,800, along with
Cox
(COX)
.
Schleyer noted that the company still has to overcome several hurdles to emerge from Chapter 11. Major ones include the bankruptcy court's approval of the company's draft disclosure statement, creditor approval, audits of the company's financial statements from 1999 through 2001, completion of 2002-2003 statements, and the settlement of litigation filed by the
Securities and Exchange Commission
.
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