Holder Wants Adelphia in the Tow Pound - TheStreet

In the cable industry, collegiality and history count for a lot. But money still wins out.

That's Monday's lesson from the saga of debt-tangled

Adelphia Communications

(ADLAE)

, after major shareholder Leonard Tow -- a cable industry pioneer like Adelphia founder John Rigas -- said he was exercising his right to appoint three new members to Adelphia's board of directors.

The move, provoked by the recent cratering of Adelphia's shares amid disclosures of Adelphia's off-balance-sheet obligations, would wrest majority control of the board from the hands of the Rigas family, which holds five of nine slots. The family, however, would still hold a controlling stake in Adelphia's shares and occupy several offices in the company's executive suite.

Not that Adelphia needs further encouragement, but Tow's request puts further heat on the cable system operator to get its financial house in order. The company, which surprised investors in March with the revelation of $2.3 billion in potential liabilities it hadn't disclosed on its books, has seen its shares lose two-thirds of their value, faces a delisting hearing on Thursday because it hasn't yet filed its 2001 annual report, and is the subject of a formal inquiry from the

Securities and Exchange Commission

. Adelphia said last week it was putting up for bid cable systems representing nearly half its 5.8 million subscribers.

On Monday, Adelphia's shares dropped 6 cents to trade at $6.08.

In a letter to Adelphia filed with the SEC, Tow said he was moving to appoint himself and two associates as board members to protect his family's "substantial" investment in Adelphia, as well as the interests of other minority shareholders. Tow said he had been following "with great interest and substantial concern" recent news from Adelphia, including disclosures about Adelphia-guaranteed borrowings by the Rigas family likely to result in a $1.6 billion charge to equity as of last December, the resulting SEC inquiry, and the company's plans to sell assets.

Tow, CEO of telco

Citizens Communications

(CZN)

, has seen the value of his stake in Adelphia go from $465 million to $140 million since the end of March, based on figures in his SEC filing. Based on a 1999 agreement in which Adelphia bought Century Communications, the cable system operator that Tow had led since 1973, Tow says that his ownership of more than 10% of Adelphia's stock gives him the right to appoint himself and two Citizens associates to Adelphia's board.

A Tow spokesman said Monday that Tow wouldn't comment on any immediate agenda his board slate might have.

Adelphia didn't respond to a request for comment Monday.

Things started out better between Tow and the Rigas family. At the time of Adelphia's 1999 purchase of the Tow-led cable operator Century -- the deal that gave Tow his stake in Adelphia -- John Rigas' son James told the

Los Angeles Business Journal

that friendship between John Rigas and Tow speeded up negotiations. "The fact that my father and Leonard Tow were cable pioneers, personal friends and shared the same vision made for a good comfort level during the discussions," James Rigas said.

A Century executive told analysts in 1999 that Tow chose to take 75% of his consideration in Adelphia stock rather than cash because Tow saw "significant upside possibilities," according to cable trade magazine

Multichannel News

. Adelphia's shares were trading above $50 at the time.