For all the alleged looting at Adelphia Communications, there's plenty of value left in the cable TV system operator. Now the question is where it will all go. Adelphia founder John Rigas is on trial with two sons and another executive on conspiracy and fraud charges, accused of improperly taking company assets and money for personal use. The cable operator filed for bankruptcy protection in 2002, after the disclosure that Adelphia was potentially on the hook for billions of dollars in loans taken out by the Rigas family. Yet the fact remains that Adelphia, the nation's fifth-largest cable operator, is a hugely valuable property, one that could remake the landscape of the cable TV business in the U.S. With 5.4 million subscribers to basic cable service, Adelphia is larger than such other publicly traded operators as Cablevision ( CVC), Mediacom ( MCCC) and Insight ( ICCI). Current management, attempting to lead Adelphia out of Chapter 11 by the end of the year, plans to operate Adelphia as a stand-alone cable TV system operator. But -- given such factors as large operators' tendencies toward industry consolidation and the current absence of a controlling family interested in staying in control (one of the classic obstacles to cable TV industry acquisitions) -- many investors are playing the game of figuring out who could end up acquiring Adelphia, and whether current shareholders could end up profiting from such a deal. The latest round of speculation emerged Monday with a report in the trade magazine Broadcasting and Cable that Cox ( COX), the nation's fourth-largest operator of cable systems, is "carefully evaluating" how it could buy all or part of Adelphia. That report -- which was picked up by UBS analyst Aryeh Bourkoff, also mentioned as a source for part of the article -- carried the caveats that Cox hadn't hired any bankers for such a deal, and that Cox CEO Jim Robbins doesn't want to do a deal until Adelphia emerges from its contentious Chapter 11 proceeding.
A Cox spokesman says the company has always been open to looking at systems that have been put on the block, but adds, "At this time, there is nothing for sale." That news has been enough to nudge Adelphia's shares 4 cents higher to 59 cents this week, over a span when terrorism jitters sent virtually every other media-industry stock into the red. But the stock's rise -- and the fact that it isn't trading closer to zero -- spotlights one of the big unanswered questions in Adelphia's bankruptcy case: what value, if any, will trickle down to current equity investors. Shareholders, after all, are typically the last in line among creditors in any bankruptcy case, and are usually left holding the bag in reorganizations. Under
the plan announced last month for Adelphia to exit Chapter 11 , shareholders are seen as unlikely to collect any value for their shares. Under that plan, current shareholders could get a piece of the money recovered in lawsuits against Adelphia's former auditor -- Deloitte & Touche -- as well as those against the Rigas family and financial institutions involved in the intertwined loans of Adelphia and the Rigases. But they'd get any money only after other creditor classes sharing in the lawsuit money were paid in full. That would require recovery "well north of $3 billion" from the lawsuits, Adelphia CEO William Schleyer said last month. Refusing to be shut out, a committee of Adelphia's equity holders are fighting to formally propose their own reorganization plan, one that would have the company be sold off to the highest bidder or bidders. The shareholders' request to put their plan on the table -- and current management's request for its own plan to remain the only one under discussion -- are slated to be discussed at court hearings in late April. It's the shareholders' contention that other cable operators would be happy to buy all or part of Adelphia, and that the money that could be raised is higher than the $17 billion that Adelphia's current management has said the company is worth, excluding subsidiaries it doesn't control.
Schleyer said last month that Adelphia had received neither formal nor informal offers for the company. But media investors point to a handful of obvious possible buyers. One is Comcast ( CMCSA), which with 21.5 million subscribers is already the nation's largest operator of cable TV systems. After its 2002 acquisition of systems formerly owned by AT&T ( T), Comcast has proven its ability to quickly turn around the performance of underperforming systems. In fact, the logistics for Comcast would appear to be less intimidating this time around, given that Adelphia is less than half the size of the former AT&T Broadband, and Comcast is more than twice as large as it was last time around. The most likely hurdle to an acquisition by Comcast, of course, is its bid for Disney ( DIS) -- a transaction that would appear to be the focus of Comcast's energy and financial resources. Another possible buyer is Time Warner ( TWX), which with 10.9 million cable subscribers is the nation's second-largest operator. Time Warner "obviously" wants to get bigger, "especially when you think about what Comcast-Disney looks like," says one media investor, speaking on condition of anonymity. The investor is long Cablevision's shares, partly on its position as a perennial takeover candidate of Time Warner's, and he has sold Adelphia's shares short. But getting from possible buyers to actual buyers and to actual money in the hands of current shareholders requires overcoming several hurdles, starting with getting acceptance of the equity committee's proposed plan. One investor with no position in Adelphia points out that one challenge to a sale is that Adelphia's systems are spread across 30 states and Puerto Rico. All other things being equal, buyers would prefer greater concentration of subscribers, says the investor; that's one appeal to prospective buyers of Cablevision, whose 3 million subscribers all lie in the New York City area. Even if Adelphia is sold off, it will be a "high hurdle" for common shareholders to collect, says the first investor, the Adelphia short-seller. He estimates that it would require system sales at a price of about $3,900 per subscriber for equity shareholders to collect. "Some of those systems could get numbers like that," he says. "I don't think the balance of them will."