Adelphia Change Steadies Few Nerves - TheStreet

At

Adelphia Communications

(ADLAE)

, the captain has gallantly handed command of the ship over to a new leader. Unfortunately, the boat is still sinking.

John J. Rigas, the man who founded Adelphia 50 years ago -- and who subsequently put three sons and one son-in-law on the board -- said Wednesday he was stepping down as chairman and CEO of the troubled cable television operator.

But coupled with the announcement that Adelphia was suspending the audit of its long-overdue 2001 annual report, as well as the

Nasdaq's

decision to halt trading in the company's shares a day before a scheduled delisting hearing, Rigas' promise of "fresh, independent leadership" did little to persuade even diehard Adelphia bulls that the leaky ship will make it safely to port.

Adelphia's shares closed at $5.70 on Tuesday, after losing 70% of their value over the past six weeks. More than $5 billion in Adelphia shareholder value has been erased this year. Following Adelphia's announcement Wednesday morning, Nasdaq suspended trading in the company's shares pending a request for "additional information."

Greek to Me

Although Wall Street had long known that Adelphia had borrowed money in tandem with separate ventures owned by the Rigases, investors weren't aware of the magnitude until late March, when the company disclosed it was potentially on the hook for $2.3 billion borrowed by the Rigas family. That news sent Adelphia's stock spiraling and touched off a

Securities and Exchange Commission

inquiry; meanwhile, Adelphia has said it would have to restate its financials going back to 1999, and it has delayed filing its 2001 annual report.

No Love Lost
Adelphia shareholders suffer

Unfortunately for Adelphia and the Rigas family that controls it, the appointment of independent director Erland "Erkie" Kailbourne as chairman and interim CEO is viewed by at least some shareholders as an inadequate solution to the company's perceived conflict-of-interest and accounting problems.

For starters, Kailbourne, a retired banker who has been on Adelphia's board since 1999, is currently chairman of the company's audit committee.

That job experience in this particular situation is unlikely to win him any points. His accounting oversight responsibilities are especially relevant, since Adelphia said Wednesday it was suspending longtime auditor Deloitte & Touche's 2001 audit so that it could conduct "an investigation of issues raised in connection with the preparation of its 10-K statement." Adelphia said it had hired marquee lawyer David Boies to advise it in connection with the investigation and other matters.

There's also the issue of Rigas family control. With the elder Rigas staying on as a board member, his family retains a majority of the nine-member board and holds an overwhelming majority of the company's voting power.

Tow Hold

"We believe that Adelphia's announcement changes nothing," said Leonard Tow, a major shareholder in the firm, in a statement Wednesday. "Mr. Rigas's resignation as CEO does nothing to resolve the conflicts of interest between Adelphia's board and the company's shareholders." Tow announced Monday he wanted to exercise a right he had to appoint three independent directors, including himself, to Adelphia's board; Adelphia hasn't responded to his request.

Dennis McAlpine, an independent research analyst who has been following the cable industry for years, says, "If the whole family doesn't step down, you haven't done anything."

As for where Wednesday's announcement leaves the holders of Adelphia's stocks and bonds, the outlook is partly cloudy to stormy. It was not immediately clear whether the suspension in trading Adelphia's shares would trigger any forced repayments of Adelphia's various debt issues, which might then squeeze the company dry of cash.

But last week, Salomon Smith Barney analyst Niraj Gupta wrote that if the company were to be delisted -- a possibility that at the time seemed more immediate than suspension in trading -- holders of $1.4 billion of the company's convertible notes would have the ability to put their debt to Adelphia, creating a liquidity crisis. Gupta, whose firm is a financial adviser to Adelphia, cut the stock from speculative buy to neutral Wednesday.

Standard & Poor's Managing Director Rich Siderman suggests that the variables are too complex to be able to say exactly how much of Adelphia's debt would be jeopardized by certain events, such as a delisting of the company's shares. "But," he says, "I think there's the possibility of severe consequences."