2 Rivals May Join Forces in Adelphia Bid

The nation’s two largest cable operators -- Comcast Corp. and Time Warner Inc. -- said Monday that they were jointly pursuing a bid to buy all or some of financially troubled Adelphia Communications Corp., whose founder was recently convicted of conspiracy and fraud.

The companies declined to elaborate on their plans, saying talks were in the early stages. Adelphia is the leading cable TV provider in Southern California.

Wall Street analysts speculated that by joining together, Comcast and Time Warner were making a preemptive strike to undercut the auction process for Adelphia.

“If the two largest potential bidders are joining in concert, it’s unclear how there will be much of an auction,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co.

Adelphia, which filed for bankruptcy protection in 2002, agreed in April to put itself up for sale to repay the $18 billion it owes creditors.

The company’s stock plummeted in the wake of an accounting scandal involving Adelphia’s founder, John Rigas, 79, and his son, Timothy. They were convicted in July for looting the company and misleading investors about its financial condition.

Greenwood, Colo.-based Adelphia has asked potential bidders to express initial interest by the end of next month. In the last few weeks, 20 potential suitors have signed confidentiality agreements that would give them access to detailed financial information to fashion offers, said Ron Cooper, Adelphia’s chief operating officer.

Last week, the company divided its cable systems into seven clusters that could be sold individually in the hopes of making an auction more affordable for a greater number of bidders. Cooper said the bidders who’ve expressed interest so far had not signaled whether they wanted all or part of Adelphia.

Adelphia decided to divvy up its operations, some analysts surmised, out of concern that only Comcast and Time Warner had enough money to buy the entire company, potentially thwarting the kind of bidding war Adelphia hopes to stoke.

For Comcast and Time Warner, a joint deal for Adelphia also would help them undo an earlier relationship that has presented complications for both.

In 2002, Comcast inherited a 21% stake in Time Warner Cable as part of its acquisition of AT&T; Broadband. At the time, federal regulators approved the purchase on the condition that Comcast dispose of the Time Warner holdings by 2007.

Under the arrangement, Comcast could force Time Warner to buy the 21% stake in May of next year. But Comcast has insisted on receiving subscribers from Time Warner, rather than cash on which it would have to pay taxes.

Time Warner, for its part, has balked at giving up subscribers to its competitor. Comcast already serves about 21 million subscribers, about twice as many as does Time Warner.

By acquiring Adelphia, Time Warner could gain subscribers and thus be in a stronger position to relinquish some of them to Comcast.

On Monday, the two companies took a small step toward unraveling this complicated relationship, independent of any Adelphia bid.

Time Warner granted Comcast an option to cut its holdings by about 4% in exchange for 90,000 Time Warner subscribers and $750 million in cash. Analysts said an Adelphia acquisition would give the two companies even more flexibility in dissolving their financial ties.

Time Warner Chief Executive Richard Parsons said in a statement that the agreement reached Monday “is another example of our working closely with Comcast to reach a mutually beneficial outcome to the business matters facing our companies.” Said Comcast Chief Executive Brian Roberts: “As we have stated from the beginning, it has always been our plan to dispose of our stake in Time Warner Cable expeditiously.”

Moffett said he believed that the partners already had reached an understanding that Time Warner would obtain Adelphia’s crown jewels -- systems in Los Angeles and Orange County that serve about 1 million of the company’s more than 5 million subscribers nationwide. This would give Time Warner control over the nation’s two leading markets, Los Angeles and New York, providing the company with even more clout in negotiations with program suppliers.

Time Warner has seen the kind of leverage that comes with size. Comcast, since becoming the nation’s biggest cable operator two years ago, has substantially reduced its programming costs by controlling systems in 22 of the 25 largest markets.

Still, a purchase by Time Warner and Comcast is no sure thing.

Adelphia has been hoping to generate interest among private equity and venture capital firms looking to back small cable entrepreneurs.

“The question is whether private equity materializes and causes a bidding war,’ said Richard Greenfield, an analyst at Fulcrum Global Partners.

Analysts said another wild card was computer billionaire Paul Allen, who has been eyeing Adelphia’s Los Angeles systems as a way to beef up his troubled Charter Communications Corp.

Adelphia expects to solicit formal bids by the end of the year, but could emerge from bankruptcy as an independent company if the offers are too low, executives say. A reorganization plan filed by Adelphia’s management earlier this year in U.S. Bankruptcy Court valued the company at $17.9 billion.

On Monday, Adelphia reported a net loss of nearly $63 million in August, according to SEC filings.