Adelphia Favors Time Warner-Comcast Bid

Adelphia Communications Corp. filed documents with the Securities and Exchange Commission late Tuesday mapping out some of the details in the year-long auction process for its assets and confirming that it has recommended that a joint bid by Time Warner Inc. and Comcast Corp. -- estimated by sources to be worth $17.6 billion -- be accepted by the bankruptcy court.

In the filing, Adelphia said the Time Warner-Comcast bid “is the bid most likely to maximize the value” of its assets to its stakeholders.

In the 70-page filing, Adelphia also detailed additional bid protections regarding a proposed breakup fee and “no-shop agreement” with Time Warner and Comcast. The document said the breakup fee would amount to about 2.5% of the purchase price. Based on the estimated $17.6 billion Time Warner-Comcast offer, that works out to about $440 million.

A hearing on the modifications is scheduled for April 20 in U.S. Bankruptcy Court in Manhattan.

The filing also appeared to confirm what sources told Multichannel News last week -- that the Time Warner-Comcast bid would include several different transactions between the three parties.

Comcast is contributing about $2 billion in cash and its 21% interest in Time Warner Cable in return for systems with about 2 million subscribers. While details of where those subscribers will come from have not been released, the fling said there will be several asset-purchase agreements between Adelphia and Comcast and Adelphia and Time Warner as part of the negotiations.

The no-shop agreement would prohibit Adelphia from soliciting bids for its assets while it is in negotiations with Time Warner and Comcast, but it leaves the door open for the MSO to accept a better offer.

According to the documents, Adelphia would be allowed to accept a nonsolicited offer that was for at least two-thirds of the MSO’s assets or stock and was higher than the Time Warner-Comcast bid.

That would appear to leave the door open for a bid from Cablevision Systems Corp., which upped its $16.5 billion all-cash offer for Adelphia to $17.1 billion in the past few days.

Sources familiar with the situation confirmed reports in The Wall Street Journal Tuesday about the amended Cablevision offer.

In a research report Tuesday, Oppenheimer & Co. cable and satellite analyst Tom Eagan wrote that he did not believe the new Cablevision offer was credible, adding that at $17.1 billion, Cablevision would have to lever itself to the hilt.

In his report, Egan said a $17.1 billion all-cash bid would leave Cablevision with an “untenable” debt-to-cash-flow ratio of 8.4 times (7.7 times if it sold its Rainbow Media Holdings LLC cable networks to raise cash). That would be more than triple the 2.7 times leverage ratio of Comcast and just one point shy of the most highly leveraged MSO, Charter Communications Inc.

While Cablevision has performed well lately and has had significant success in rolling out new services, particularly cable telephony, Eagan said that may have more to do with the high-income/early adopter characteristics of its core New York metropolitan area market than its operational expertise.

Cablevision officials declined comment.