Time Warner and Comcast Corp., the two largest cable TV companies in the country, announced today that they had reached an agreement to buy the assets of the bankrupt cable company Adelphia Communications Corp. in a deal valued at $17.6 billion in cash and stock.
Under the deal, Adelphia's Western New York cable system with 300,000 subscribers will be taken over by Time Warner, which also operates systems in Rochester, Syracuse and Binghamton. No immediate changes are planned for customers or employees, Adelphia said in a statement. The deal is expected to close in nine to 12 months.
Adelphia employs 1,000 customer service and technical support workers in Buffalo and Cheektowaga and 700 people who operate the local cable network.
The deal beat out a last-minute bid by Cablevision Systems Corp., a New York-area cable TV company, and still faces several steps before closing, including approval by regulators and bankruptcy court.
Time Warner and Comcast will pay $12.7 billion in cash and 16 percent of the stock in Time Warner's cable subsidiary, Time Warner Cable, which will become a publicly traded company at the time the deal closes. A source close to the deal speaking on condition of anonymity valued the stock part of the payment at $4.9 billion. Time Warner and Comcast will also swap cable customers.
Adelphia has 5.2 million subscribers in Florida, Ohio, New York State and New England, "all of which fit tightly with Time Warner and Comcast," Sanford C. Bernstein & Co. analyst Craig Moffett said before the announcement.
As part of the multipart deal, Comcast will give back its 21 percent interest in Time Warner Cable and pay about $1.5 billion in cash. It will wind up with an additional 1.8 million cable subscribers as a result of the deal. Time Warner will gain 3.5 million subscribers.
After the deal closes, Comcast will maintain its lead as the largest cable TV company in the country, with 23.3 million customers, and Time Warner will remain No. 2, with 14.4 million subscribers.
The deal expands the reach of both Time Warner and Comcast and allows them to arrange their subscribers more efficiently in geographic "clusters," making it easier to save costs and make upgrades to cable systems.
Adelphia, which moved its headquarters from Coudersport, Pa., to Colorado, has been operating under bankruptcy protection since 2002 after collapsing in an accounting fraud and corporate looting scandal. Company founder John W. Rigas and his son Timothy were convicted of conspiracy, bank fraud and securities fraud. Their sentencings are scheduled for June 1.
The Adelphia purchase, which hastens the end of the bankruptcy case, is Time Warner's biggest transaction since 2001, when America Online purchased the media company in a $124 billion deal that trimmed more than $100 billion in market value and embroiled the business in investigations.
Adelphia filed for Chapter 11 in June 2002, seeking protection from creditors including William Huff and his W.R. Huff Asset Management Co., which invests in bonds of distressed companies.
Adelphia CEO William Schleyer, 53, auctioned the company's assets in a bankruptcy that followed the Rigas family's accounting fraud case.
The Rigases made misleading financial statements, misappropriated funds and boosted debt more than fourfold within two years, according to a Dec. 23 regulatory filing by Adelphia.
Following the convictions of John and Timothy Rigas, Adelphia sued the Rigases in bankruptcy court, seeking to recover $3.2 billion from family members.
Schleyer, who was hired to run Adelphia in March 2003, proposed a restructuring plan 11 months later that valued the company's assets at about $17 billion and would allow Adelphia to emerge from bankruptcy and continue with its operations.
Creditors and bondholders didn't support that plan, forcing Schleyer to consider an auction.