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.”

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