Bankrupt cable TV operator Adelphia Communications Corp., under pressure from creditors and shareholders, on Thursday said it put itself on the block in what could be one of the largest court-managed auctions ever.
Adelphia's management, which originally sought to keep the company intact on its emergence from Chapter 11 bankruptcy, said its board met Wednesday and concluded that "a fair and open sales process" would allay "legitimate concerns" of its creditors.
Analysts have put the value of the No. 5 cable television company at least $20 billion, with likely bidders including rivals Comcast Corp., Time Warner and Cox Communications. Private equity buyers are also likely to express keen interest, experts said.
"It's a great opportunity for investment banks," said Jeffrey Stevenson, co-chief executive of Veronis Suhler Stevenson, an investment bank that focuses on media deals. "And there will probably be strong interest from private equity firms who value cable assets because of their predictable cash flows."
The decision is a big victory for Adelphia's creditor groups, particularly shareholders who saw the value of their holdings evaporate nearly two years ago when the No. 5 cable company collapsed into bankruptcy amid federal fraud charges against its founding Rigas family.
The shareholders were the first to charge that Adelphia's new management undervalued it by billions of dollars and the company should be sold, prompting bondholders and bank creditors to follow suit.
But management argued to keep the company intact, with a bankruptcy exit plan of swapping much of its billions of dollars in debt for cash and equity to be distributed to bank and bond creditors.
"We are extremely pleased that the company agreed to change its strategy and adopt our view," said Peter Morganstern, lawyer for the Adelphia Equity Committee. "Now that the company is in play, we anticipate it will be a vibrant, active process that will result in significant distribution for all constituencies."
Adelphia shares surged on the news, recently trading up 20 percent to 84 cents in over-the-counter trading.
The move comes after bondholders, senior lenders and shareholders all filed objections with the bankruptcy court, saying that a sale of the company would generate more money for them. As the bankruptcy process typically require consent by various creditor groups, the objections carried weight.
"You have a plan that could not be confirmed," said one Adelphia shareholder who asked for anonymity. "It had to happen. They (management) had to cave."
Adelphia's original reorganization plan valued the company at $17 billion, which is billions less than shareholders and financial analysts said the company is worth. The shareholders group, for instance, calculated the value at as much as $24 billion.
The $17 billion amounts to about $3,400 per subscriber for the nation's fifth-largest cable company, but analysts say the company's market value could be closer to $4,000 per subscriber or about $21 billion.
"Adelphia is an unusual bankruptcy in that the asset themselves remain extremely attractive," said Craig Moffett, analyst with Sanford Bernstein. "About 80 percent of the subscribers are in well-clustered metro systems," particularly in Los Angeles and Florida.
Adelphia's current management, CEO William Schleyer and COO Ron Cooper, stood to make $35 million in bonuses and options if the company emerges from bankruptcy and sells new shares to the public.
But that plan would have left no recovery for the thousands of shareholders except future proceeds from litigation. Many of whom have joined one of the myriad civil suits against the Rigas family to recover some of their losses.
Schleyer said "the landscape changed" with creditors, prompting its decision to change strategy.
"It became clear that more and more constituents wanted it put up for sale," said Schleyer in an interview. "We felt compelled to do what they are asking us to do."