Two Cable TV Giants to Acquire Adelphia

In a move that promises to radically alter the Los Angeles cable landscape and could eventually improve service, Time Warner Inc. and Comcast Corp. agreed Thursday to jointly acquire Adelphia Communications Corp. for about $17.6 billion in cash and stock.

The offer by the nation’s top two cable operators beat a $17.1-billion bid by Cablevision Systems Corp., a late entry in the yearlong auction for Adelphia, which filed for bankruptcy protection two years ago.

Under Thursday’s agreement, which must be approved by regulators, Adelphia’s creditors and the U.S. Bankruptcy Court, Time Warner would become Southern California’s largest cable provider, more than tripling its customer base to 2.4 million subscribers from Los Angeles to San Diego.

Time Warner would take over not only Adelphia’s 1.1 million Southern California subscribers but also Comcast’s nearly 600,000 customers in the region.

Analysts predicted that the company’s dominance would force two other cable operators -- Cox Communications Corp. and Charter Communications Corp. -- to sell or swap their local systems to Time Warner.

Cable companies have been eager to own large clusters of subscribers to gain efficiency and market clout to compete against satellite and phone rivals. But Glenn Britt, chief executive of Time Warner Cable, said that neither Cox nor Charter had indicated that they were ready to sell.

Analysts also predicted that customers would see improvements in service as Time Warner brought to bear operating efficiencies from the consolidation.

Adelphia has a poor record for customer service in Los Angeles. The bankruptcy filing, which followed an accounting scandal that resulted in Adelphia’s founder being convicted of fraud and conspiracy, has limited the company’s ability to offer advanced products to all its customers. “Time Warner is known as an innovation leader,” Britt said. “What people can look forward to is much better customer services and many more products.”

Britt said that all Adelphia and Comcast customers eventually would have access to the same options that are now available to Time Warner customers, including high-speed Internet access, video on demand, high-definition television, personal video recorders and telephone service over cable lines.

He said local changes would not happen overnight. The deal will take 9 to 12 months to be completed.

Under the deal, Adelphia would receive $12.7 billion in cash and 16% of a new publicly traded company that would be 84% controlled by Time Warner, the lead bidder, which put up $9.2 billion of the cash.

Should the transaction be completed, Time Warner Cable would be valued at about $30.6 billion.

The deal would solidify Time Warner’s position as the nation’s No. 2 cable provider, after Comcast. By expanding its customer base to 14.4 million customers, up from 10.9 million today, Time Warner would also leapfrog its two satellite TV rivals.

Under the complicated, multi-pronged deal, Comcast would give Time Warner 1 million of its subscribers as well as a 21% stake it owns in Time Warner Cable. Comcast also would give Adelphia $3.5 billion in cash.

Time Warner would then give Comcast 750,000 of Time Warner’s subscribers and 2 million of Adelphia’s, plus $2 billion in cash. In the end, Comcast would have 23.3 million customers.

If the deal is not consummated, Time Warner and Comcast will receive a “break-up fee” of as much as $450 million.

Some of Adelphia’s equity shareholders worry that such a penalty could block higher bids. They said Thursday that they were considering legal action.

Under the deal, they probably would end up with nothing because bondholders, who are owed $20 billion, are first in line in the bankruptcy.

Time Warner shares rose 60 cents to $17.53 on the New York Stock Exchange. Comcast rose 76 cents to $32.25 on Nasdaq.