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Cox Eyes Adelphia

Ears perked up when Cox Communications CEO Jim Robbins was asked at Bear, Stearns & Co.'s annual media investor conference if he was planning any takeovers. "There's nothing out there that's for sale," he responded, then tellingly added, "or has been through the bankruptcy process."

That was a pointed reference to Adelphia Communications. The No. 5 cable operator is wending its way through Chapter 11 after getting snarled in a financial scandal triggered two years ago by founder John Rigas, now being tried on fraud charges.

Robbins' comment was more than an offhand remark. Cox executives have been carefully evaluating how they could acquire all or major parts of Adelphia, worth at least $17 billion, according to UBS Warburg analyst Aryeh Bourkoff. Adelphia serves about 5 million subscribers around the country.

Robbins is hungry to bulk up his MSO's portfolio, particularly with distressed properties that Cox could parlay into significant value. Cox's study is strictly internal. Although investment bankers have streamed to Atlanta seeking an assignment to chase Adelphia, no one has been hired.

Still, Robbins and his team have reached one firm conclusion: No moves until Adelphia emerges from Chapter 11. An adviser to the company says Cox has decided bankruptcy court is too contentious and wickedly complicated. It requires the courting of too many angry players—banks, senior bondholder, junk bondholders, various equity investors —with conflicting agendas.

But adding Adelphia's subscribers to Cox's 6 million would make Cox the second-largest cable operator, behind Comcast, and, if you count DBS operator DirecTV, the third-largest multichannel video distributor. Cox would make a big stab at consolidating the Los Angeles market, combining Adelphia's extensive system with its own Orange County operation. Plus, Cox would get substantial clusters in Miami; Cleveland; West Palm Beach, Fla.; and Vermont.

Cox probably wouldn't want Adelphia's cable operations in unattractive markets across 32 states, largely in rural markets. The cable giant wouldn't comment. A spokeswoman would say only that the company is open to opportunities fit is acquisition strategy.

An Adelphia deal, however, presents complications for Cox. Adelphia is so large that a stock swap would dramatically dilute Cox's existing shareholders, notably Cox family holding company Cox Enterprises.

And Adelphia's current managers—led by ex-AT&T and ex-Continental Cablevision executives Bill Schleyer and Ron Cooper—don't want to sell right away. They believe creditors will make out best if Adelphia reorganizes, shrinks its $21 billion debt load to $8.8 billion, and runs operations for a while. Of course, rival bids could emerge from Comcast and Time Warner Cable.

Robbins takes the long view. He seeks growth and was in the hunt with Comcast for AT&T Broadband, until the price got too high. Lately, he has been preaching that size is overrated.

But expect Robbins to build his empire rather than favor the status quo. "He thinks bringing management to troubled properties is a great way to make money," says one Wall Street executive who has discussed an Adelphia deal with Robbins. "Jim definitely wants this."