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Comcast, TW Bid For Adelphia Hits Court

UPDATED: Time Warner and Comcast have reached a preliminary agreement to acquire failing rival Adelphia Communications for $17.7 billion, according to news reports Friday.

The joint bid would further solidify the U.S. market share dominance the two cable operators currently enjoy. Combined, Comcast and Time Warner subsidiary Time Warner Cable serve more than 30 million customers, according to industry statistics.

The bid was presented to the judge presiding over Adelphia's Chapter 11 bankruptcy proceedings Thursday, according to the L.A. Times. The company had also been facing Securities & Exchange Commission (SEC) scrutiny over some of its accounting procedures.

Both Jenni Moyer, a Comcast spokeswoman, and Mia Carbonell, a Time Warner spokeswoman, declined to comment.

The two companies initially placed their joint bid in September 2004, when Adelphia executives put the company's cable systems up for sale shortly after declaring bankruptcy. Adelphia is the fifth-largest cable network in the U.S., with more than 5 million customers.

The $17.7 billion bid would need approval from both the judge presiding over the bankruptcy proceedings, as well as Adelphia creditors, which are owed about $20 billion, according to a report in the L.A. Times.

The Time Warner/Comcast bid trumps one placed by another cable operator, Cablevision, which reportedly put down a $16.5 billion cash-and-stock offer to Adelphia executives.

Jim Maiella, a Cablevision spokesman, declined to comment on the latest developments.

The unfolding situation in some ways parallels another high-profile telecom acquisition, the three-way affair between MCI , Verizon and Qwest .

Qwest had upped its bid price in an effort to convince MCI executives to dump Verizon's offer, a strategy that hasn't fared them well. Last week, MCI executives reaffirmed their commitment with Verizon after the Baby Bell increased its bid to $1 billion.

Cablevision, in this case, is a smaller cable company trying to create market share against the likes of top-rated Comcast and Time Warner. Unlike the MCI-Verizon deal, where executives found more merit in the long-term prospects at Verizon, Adelphia creditors want the money to recoup their investment.

Richard Doherty, director of research at market research firm Envisioneering Group, said the higher bid from Time Warner/Comcast doesn't mean it's a done deal.

"Because there are so many debt engines involved with this -- there are some brokerages out there, some people that Time Warner's borrowed money from that don't want to see this deal happen and would rather see them involved in content instead of distribution," he said. "It's by no means over yet.

"The two bids on the table could change yet and there could be demands to make it a higher cash portion from [Time] Warner and Comcast."

Doherty also notes that since Adelphia bond holders and other groups of shareholders have been in bankruptcy court since last year, they are in no hurry to strike a quick deal. A final deal, he said, might not happen until late in April or in May.

"There's bound to be more negotiation," Doherty said.

Adi Kishore, a senior analyst at the Yankee Group, said that while there are some unwritten chapters in the current saga, he thinks it's likely the joint Time Warner/Comcast bid will prevail.

While he expects a bid will face some governmental scrutiny he doesn't think Comcast will have a problem closing on an acquisition of a company that expands its holdings. There is competition in the television, content and Internet services markets, he said, from companies like satellite provider DirecTV, content companies like News Corp. and telecom providers looking at high-speed offerings like IP television.

"Essentially, they will argue that size may still matter but it's almost a necessity in order to be able to compete effectively," Kishore said. "Limiting their ability to grow negatively affects the competitive market because they need scale to go up against the telcos, against News Corp., against the satellite operators."