Cash and Cable

Comcast Corp. and Time Warner Inc.'s joint interest in bankrupt operator Adelphia Communications Corp. have sparked several new theories on Wall Street about how the pieces will be divided.

Top executives from both companies, speaking at an investor conference in Pasadena, Calif., confirmed interest in a deal to divvy up the 5.4 million-subscriber system operator.

A total of 40 potential bidders were kicking Adelphia's tires the week after executives divided the company into seven clusters to facilitate a piecemeal sale. But smaller companies may wait to see how a Comcast-Time Warner deal plays out, then buy the remaining non-strategic systems that would go for far less than the $3,400-$3,500 a subscriber that analysts believe Adelphia will get in an $18 billion-$19 billion deal.

Talk of a joint bid surfaced the day Comcast and Time Warner struck a deal that would pare Comcast's 21% stake in Time Warner Cable (TWC) to 17% in exchange for $750 million in cash and 90,000 subscribers. Such a tax-efficient model could lead to further cooperation between the entities, Comcast Chairman and CEO Brian Roberts said at the Merrill Lynch Investors Conference.

"That transaction," he said, "would begin the process to dispose of a multibillion-dollar stake that we don't want to wake up at the end of five years and say, 'We have to have a fire sale.'"

In a Time Warner combination, Comcast could gain Adelphia clusters in such places as Pennsylvania, New England and the Mid-Atlantic states for its TWC stake. Time Warner would retain strategic systems in upstate New York, Ohio, Southern California, Maine and the Southeast.

The companies could also form a joint public entity involving cable-only assets, a move that some analysts criticized because of Wall Street's low regard for cable stocks. But Tom Wolzien, senior media analyst with Sanford C. Bernstein & Co., isn't so sure. "It's a question of what you're getting for it. … If I have 10 million [subscribers] and you have 6 million, are we going on a one-to-one basis, valuing subs equally?" he said. He noted that Time Warner Cable's assets are now locked up—and hidden—inside Time Warner Inc.

But would such a mega-bid by Comcast and Time Warner be in the best interest of Adelphia's bondholders? "If you're a bondholder, you want to see more than just two companies" bidding for Adelphia, said one veteran media attorney.

Analysts weren't sure how such a bid would play out for creditors. "[Comcast and Time Warner] might strike a harder bargain for systems that are very popular, like Florida or L.A., which isn't to the benefit of bondholders," said Thomas Eagan, an analyst with Oppenheimer & Co. But, he added, in a deal in which several companies divide up Adelphia's assets, creditors might get less money for some of the less popular systems.

No one is in any hurry to deal. Earlier in the week, TWC President Glenn Britt remained cautious. "If we can invest at a good price," he said, we'd like to be bigger."

Wall Street still isn't sure that a deal with Time Warner to buy Adelphia is good for Comcast investors. Eagan said Comcast's priority was to dissolve its TWC stake, adding that the company might take a beating on selling non-strategic Adelphia subscribers below their sale price. "It's not advantageous unless they get 3 million subscribers," he said. "It depends on how many subs they get and where they are."