Cablevision May Bid on Its Own for Adelphia

In an audacious move that could raise the stakes in the sale of Los Angeles’ largest cable operator, Cablevision Systems Corp. is preparing a $16.5-billion cash offer for Adelphia Communications Corp., according to people with knowledge of the transaction.

Such a bid could be a setback for Kohlberg Kravis & Roberts Co. and Providence Equity Partners, the two private equity firms that had approached Cablevision about joining them in sweetening their $15-billion offer for Adelphia.

The two firms are looking to challenge Time Warner Inc. and Comcast Corp., the two leading U.S. cable operators, whose joint bid of $17.6 billion is still considered the auction’s front-runner.

Word of Cablevision’s potential bid for Adelphia spread swiftly Tuesday through the industry’s annual convention here, sponsored by the National Cable & Telecommunications Assn. Industry executives and analysts questioned whether Cablevision could finance such a deal and said the company, which has been rocked in recent months by a father-son feud in its executive ranks, was sending mixed signals to its investors.

“It’s puzzling for all sorts of reasons,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co., who noted that in contrast to Time Warner and Comcast, which own systems that adjoin those of Adelphia, Cablevision owns systems only in New York. Adelphia’s 5 million-plus subscribers would give Cablevision more heft but little efficiency, he said, because its systems have no overlap.

“Cablevision would go from a pristine cluster of high-end, all-metro subscribers to a hodge-podge of urban and rural, high- and low-income subscribers,” Moffett said.

Cablevision’s visionary 79-year-old founder, Charles F. Dolan, has staked his career of late on launching a satellite TV provider called Voom that would compete against the cable industry. Wall Street had assumed that Dolan would sell his cable systems to finance Voom, which has attracted fewer than 50,000 subscribers and last year lost $600 million.

That loss has prompted Dolan’s son, James, Cablevision’s chief executive, to lead a campaign to shutter his father’s pet venture. Spurred by the younger Dolan, Cablevision’s board voted recently to shut down Voom.

The elder Dolan retaliated by firing three board members who had voted against him and restocking the board with three of his friends, including John Malone, chairman of Liberty Media Corp., and Frank Biondi, former chief executive of Viacom Inc. and Universal Studios Inc.

But Tuesday’s news seemed to indicate that the Dolan clan had made peace, at least temporarily. Sources close to the company said the Dolans came together in an unscheduled meeting of the board Monday to present the Adelphia proposal to Cablevision’s directors.

Sources said the financing of the proposed bid was still coming together but that it would have a heavy debt component. Analysts say Cablevision has about $900 million in cash . To raise more, the company may consider selling some of its assets, including cable channels such as American Movie Classics, people close to Cablevision said.

Cablevision is in serious discussions with Merrill Lynch & Co. and JPMorgan Chase & Co. about financing the deal, according to people close to the situation.

But sources do not rule out the participation of KKR and Providence Equity. Talks between Cablevision and the two investment firms broke down in recent days because their “terms weren’t acceptable” to the Long Island cable company, one source said, prompting Cablevision -- which controls Madison Square Garden, the New York Knicks and cable channels such as the Independent Film Channel -- to proceed alone.

Representatives of Cablevision, KKR and Providence all declined to comment.

If private equity bidders come back to the table to strengthen Cablevision’s potential bid, Time Warner and Comcast could be forced to increase their offer, or at the least enrich the cash portion. Their joint bid consists of mostly cash in addition to stock of uncertain value in the new company that would be formed from a merger of Time Warner Cable and Adelphia assets.

Neither Time Warner nor Comcast would comment.