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April 6, 2005
Cablevision Seeks Adelphia for $16 Billion
By ANDREW ROSS SORKIN and GERALDINE FABRIKANT

Cablevision Systems turned the bidding for Adelphia Communications into a heated battle yesterday by offering $16.5 billion in cash for the company, executives involved in the process said.

Cablevision made its offer alone, without the participation of two private equity firms that it had been in talks with to form a bidding group, the executives said. Still, Cablevision continues to discuss the possibility of making a joint bid with the firms, Kohlberg Kravis Roberts and Providence Equity Partners, the executives added.

Cablevision's surprise decision to pursue Adelphia by itself, at least for now, pits it against its rival, Time Warner, which has submitted a more complicated bid in conjunction with Comcast worth $17.6 billion in cash and warrants for stock in a company that would be created by combining Time Warner's cable business and Adelphia.

With little competition until now, the bid by Time Warner and Comcast had been considered the favorite. But Cablevision's bid, though lower, may be considered more appealing to Adelphia's directors and bondholders because it is all cash.

A deal would make Cablevision a national operator with 8.4 million subscribers. Cablevision, based in Bethpage, N.Y., has lucrative systems in New York's suburbs. Adelphia has systems in Los Angeles, upstate New York and elsewhere. Time Warner has 10.9 million subscribers.

Cablevision decided to submit a bid before reaching an agreement with its private equity partners to avoid being shut out of the auction and as a way to "buy some time" to make a deal with the equity firms, the executives said. The bid is heavily conditioned and could still be withdrawn. The executives also said that Cablevision's management thinks that even if a deal cannot be reached with the equity firms, it can afford to pursue the bid by itself. Cablevision is half the size of Adelphia, which is in bankruptcy protection; its market capitalization is $8.9 billion and it already has $11 billion in debt.

Cablevision is receiving financing from J. P. Morgan Chase and Merrill Lynch. Kohlberg Kravis and Providence had previously bid $15 billion in cash and are not expected to submit a revised bid if they do not join Cablevision. A spokesman for Cablevision declined to comment, as did a spokeswoman for Kohlberg Kravis and a spokesman for Providence.

Cablevision's bid appeared to surprise investors and analysts, who said the bid was at odds with its strategy of focusing on a contiguous group of cable systems in the suburbs of New York.

"It is really hard to see how Cablevision's participation in this deal makes any sense because it does not bring any geographic synergies to the table," said Craig Moffett, a cable analyst at Sanford C. Bernstein & Company. "Cablevision would emerge an overleveraged, midsize cable operator that would dilute what is today a superhigh-end, well-clustered cable market in New York."

The company chairman, Charles F. Dolan, who had stepped back from running the cable operations, is spearheading the Adelphia bidding, the executives said. Although he has differed with his son, James L. Dolan, Cablevision's chief executive, who has opposed efforts to have Cablevision continue financing the satellite TV business Voom, the two men are said to be in agreement over the bidding procedures.

If Cablevision, with its expertise in managing large market cable systems, wins the bidding, it would probably keep Los Angeles and might sell some smaller systems for which Adelphia is particularly well known.

Even so, one longtime cable investor, who declined to be identified, said the bid made little sense.

"They spent the last five years stripping everything down to the crown jewel: the New York cable systems," the investor said. "Now they are suddenly going to releverage the balance sheet at a time of rising interest rates to gain a series of disparate cable systems."

He said the only reason the stock had risen was that investors thought the Dolans were putting the company in order to sell it.

But an acquisition could push the stock down significantly. Shares fell 19 cents to $27.83 a share, then dropped another 13 cents in after-hours trading as investors worried that additional debt would hamper the company's performance.

Yesterday it still remained unclear what Cablevision planned to do about financing the operations of Voom.

James Dolan and the board had indicated that they would not support the capital-intensive, money-losing project. But Charles Dolan is still fighting for its survival and seeking the financing to keep it alive.

Although the bidding for the Adelphia systems is costly, it is likely to receive stronger support from the board than the Voom effort, analysts said. At least two directors - Leonard Tow, former chief executive of Citizens Communications, and John C. Malone, the head of Liberty Media - are friends of Charles Dolan who have made their fortunes in the cable business.