Adelphia Explores Options for a Sale

Adelphia Communications Corp., the major cable-television provider in the Los Angeles area, said Thursday that it would put its operations on the auction block because of protests that the company’s bankruptcy reorganization plan undervalued its assets.

The sale of Adelphia could pave the way for further consolidation locally and lead to more advanced services here.

Analysts predicted a spirited bidding war for Adelphia, described by one as “the last great collection of cable systems” to come to market.

“The sale of Adelphia is likely to be the first shoe to drop in the consolidation of the Balkanized Los Angeles market,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. “Whoever gets Adelphia will be the odds-on favorite to own all of L.A.”

Five companies now share the Los Angeles cable market; other cities have come under a single owner after a decade of mergers and sales. The L.A. fragmentation has slowed the rollout of services such as video on demand and telephony -- phone calls transmitted over cable wires.

The operating efficiencies that might come with consolidation could reverse that trend.

They might also put remaining cable firms on better footing to compete against phone and satellite TV rivals that enjoy a broader geographic reach.

“Los Angeles needs to be consolidated,” said Marc Nathanson, a local cable pioneer who is a director at Charter Communications Inc., the fourth-ranked cable TV provider, which is controlled by computer billionaire Paul Allen. “You can’t compete in the media market otherwise.”

According to analysts and industry sources, front-runners for the Adelphia assets are likely to be Time Warner Inc., the second-ranked provider after Comcast Corp., and Cox Communications Inc., the No. 3 player. Both companies are eager to bulk up in the wake of Comcast’s acquisition in late 2002 of AT&T; Broadband, which catapulted the family-owned company into the industry driver’s seat, giving it 21 million subscribers nationwide.

By comparison, Adelphia has 5.4 million U.S. subscribers, including more than 1 million in Southern California neighborhoods such as Eagle Rock, Brentwood, Beverly Hills, Santa Monica, Manhattan Beach and areas of Orange County.

Time Warner serves more than 350,000 cable subscribers in Los Angeles, San Diego and the desert cities to the east, while Cox dominates Orange County and San Diego with nearly 800,000 subscribers.

Neither Cox nor Time Warner would comment on Adelphia. But Time Warner executives have expressed interest recently on expanding in cable. In an interview in an industry trade magazine, Time Warner Cable chief Glenn Britt went so far as to predict that Time Warner could be the company to consolidate Los Angeles.

Comcast would be a factor in any Time Warner cable acquisition. Comcast owns 20% of Time Warner Cable and, under a joint agreement, can force Time Warner to buy that stake in May 2005. Instead of cash, Time Warner is expected to pay Comcast with roughly 2 million cable subscribers.

Still, Cox may be the most logical buyer, allowing it to dominate Southern California.

“Cox is the favorite because of that, but the rest of Adelphia fits better with Time Warner,” Moffett said.

Adelphia filed for bankruptcy protection two years ago in New York amid allegations that founder John Rigas and other top executives, including his sons, looted the company and cheated investors out of billions of dollars. Rigas, two of his sons and another former executive are on trial in New York on conspiracy and fraud charges.

In the wake of the scandal, Adelphia brought in new management, including former AT&T; Broadband chief William Schleyer, who moved the company’s headquarters from Coudersport, Pa., to Greenwood Village, Colo., and has been streamlining its operations.

The new team filed a reorganization plan in U.S. Bankruptcy Court this year that valued the company at $17.9 billion.

That sparked an outcry from the company’s creditors and bondholders, who have argued that Adelphia would fetch more in a sale. Some analysts, such as Aryeh Bourkoff, who follows the company for UBS Warburg, say a sale could bring $20 billion or more.

Adelphia’s directors agreed to the sale during a board meeting Wednesday.

Adelphia’s secured lenders, a group of common shareholders and Rigas have asked the U.S. Bankruptcy Court in New York for permission to file their own plans.

Adelphia management favored emerging from bankruptcy as an independent.

“We’ve increased the value of the company in the last year and felt we could sustain that progress,” Adelphia President Ron Cooper said. He said pursuing a “dual path” would probably put the company behind on its planned schedule to emerge from bankruptcy protection in late summer.

Analysts, though, say a sale may be inevitable.

“It’s hard to see how they could turn back at this point,” Moffett said.