TW Leads Pack for Adelphia

Apr 19, 2004  •  Post A Comment

Time Warner stands an increasingly good chance of walking away with Adelphia Communications once it’s put up for sale, eclipsing Cox Communications, which just weeks ago was seen as a likely buyer of the bankrupt cable operator, according to Wall Street analysts.
With a price tag for Adelphia estimated to be as much as $21.5 billion, or $3,800 to $4,000 per subscriber, few cable operators are seen as having the wherewithal to come up with the funds to buy the entire company, which currently boasts 5.4 million subscribers, making it the nation’s No. 5 cable operator.
To be sure, no company has officially made a bid for Adelphia, and there is some speculation that nothing will happen for some time. Adelphia has a bankruptcy court appearance April 26 that could determine how the company emerges from bankruptcy.
Analysts said Time Warner, Cox and market leader Comcast are seen as having a strong enough balance sheet to swing such a purchase, though only Time Warner is seen as having what it takes to pull off such a sale.
Comcast Preoccupied
Much of the reasoning behind that theory relates to the circumstances confronting both Comcast and Cox. Though Comcast has the financial wherewithal to snag Adelphia, the No. 1 multiple system operator is engaged in a hostile takeover bid for The Walt Disney Co. and thus is seen as too preoccupied to consider an Adelphia offer.
And while Cox is viewed on Wall Street as primed to get bigger through acquisitions, a couple of factors lead some analysts to think a bid on Adelphia is growing less likely.
Aryeh Bourkoff, an analyst at UBS Securities, said that in conversations with Cox management he has been left with the impression Cox is more interested in selected cable systems within Adelphia to complement existing clusters rather than in the entire company. “If sold on a piecemeal basis, Cox could be interested in select assets,” he wrote in a research note.
Another factor working against Cox’s making a play for all of Adelphia is the Atlanta-based company’s borrowing capacity. Merrill Lynch analyst Jessica Reif Cohen noted that Cox currently has borrowing capacity of around $5 billion, and going higher would jeopardize Cox’s current investment-grade ratings. To make a purchase of all of Adelphia work, Cox would have to issue a significant amount of stock.
Added Bonuses
In addition, Ms. Cohen noted, once Adelphia emerges from bankruptcy later this year, it will probably be carrying around $8 billion in debt-another factor that could weigh on Cox if it decided to go after Adelphia.
That leaves Time Warner. Ms. Cohen estimated that Time Warner’s borrowing capacity now stands at about $18 billion, well positioning the media giant to go after the operator.
Plus, she added, there are a few added bonuses: Chief among them is that a deal with Adelphia could help Time Warner reduce the stake that Comcast has in Time Warner Cable by offering former Adelphia subscribers to Comcast in exchange for Comcast reducing its stake in Time Warner’s cable operation. Further, Ms. Cohen speculated that Time Warner could transform the cable unit into a public company by merging it with the publicly traded Adelphia.
That scenario could address an issue that Fulcrum Global Partners analyst Richard Greenfield said looms large in any transaction that Time Warner tries to execute: the Securities and Exchange Commission probe into accounting practices at Time Warner’s America Online unit. With that investigation continuing, Mr. Greenfield believed it was unlikely Time Warner would be able to make a play for Adelphia, leading him to view Cox as the leading contender.