Possible trouble with Tow
FROM
http://biz.yahoo.com/ap/050407/cablevision_adelphia.html?.v=2
Associated Press
Cablevision in Dilemma Over Reported Bid
Thursday April 7, 6:28 pm ET
By Seth Sutel, AP Business Writer
Reported Adelphia Bid Creates Dilemma for Cablevision, Board Member
NEW YORK (AP) -- As Wall Street continues to puzzle over Cablevision Systems Corp.'s intentions, the company finds itself in an unusual dilemma: One of its new board members is a major stakeholder in Adelphia Communications Corp., a company it's reportedly seeking to acquire.
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Leonard Tow, a cable industry veteran, became a Cablevision director in early March. He was brought in as part of a boardroom shuffle executed by Cablevision's founder and chairman Charles Dolan, who is feuding with his son James, Cablevision's CEO, over what to do with a struggling satellite broadcasting business the company owns.
Less than a month after Tow joined Cablevision's board, The New York Times reported that Cablevision was considering joining other investors in bidding for Adelphia, a Colorado-based cable company now being reorganized in bankruptcy court. This week, other news outlets reported that Cablevision had made an all-cash bid of $16.5 billion for Adelphia on its own.
Cablevision, which is based in Bethpage, N.Y., serves about 3 million cable TV customers in the New York area and also owns Madison Square Garden, the New York Knicks of the NBA and the NHL's Rangers, as well as Radio City Music Hall. Adelphia has about 5 million subscribers in 31 states.
Both Adelphia and Cablevision have repeatedly declined to comment on Cablevision's reported bid for Adelphia, which is also being pursued by Time Warner Inc. and Comcast Corp.
Any bid by Cablevision would come with complications, however. It would be in Cablevision's interest to pay the lowest possible price for Adelphia, but it's in the interest of Leonard Tow and other stakeholders in Adelphia, which is currently trying to emerge from bankruptcy following an accounting scandal, to get the highest possible price.
"There's no way of reconciling that conflict," said Robert Bushman, an accounting professor at the University of North Carolina's Kenan-Flagler Business School. "He does have an interest in both sides."
Tow did not return a call seeking comment, and Cablevision declined to make any comment on the matter.
Tow is also serving on a committee representing equity holders in Adelphia's bankruptcy process, according to documents filed in the hearings, and thus he could have access to information about the company's thinking that might be of use to a potential bidder such as Cablevision.
That could end up working to the advantage of both sides in the event that a deal is reached that both companies are happy with, says Lawrence Hamermesh, professor of corporate law at Widener University School of Law in Delaware.
However, to the extent that Tow is involved in the sale process of Adelphia, and also a director at a company that is reportedly seeking to take it over, "there's room for conflict," Hamermesh said.
"Someone in that position has a conflict of interest and may have information that would give one side or the other an informational advantage that wouldn't be present in an arms-length negotiation," Hamermesh said.
Espen Eckbo, a finance professor at the Tuck School of Business at Dartmouth College, said that were Cablevision making a bid for Adelphia, it could avoid the appearance of any conflict if Tow were to recuse himself from any discussions on the bid. "If I were him I would abstain," Eckbo said.
Tow sold his cable company, Century Communications Corp., to Adelphia in 1999 for $3.6 billion in cash and stock. Adelphia's latest annual report showed that Tow and his wife own 21.6 percent of the company's stock.
Owners of equity in a bankrupt company have far less control over bankruptcy proceedings than do creditors, and their claims are given much less weight.
In addition, Tow also is seeking $900 million in claims against Adelphia in the bankruptcy proceedings, which the company is fighting.
Cablevision's stock has been rising steadily since last summer on expectations that the company would abandon its money-losing satellite business and possibly put itself up for sale.
Its shares rose 99 cents, or 3.7 percent, to close at $27.85 Thursday on the New York Stock Exchange, making up the ground lost the day before on concerns about reports of Cablevision's all-cash offer for Adelphia. The shares have ranged between $16.13 and $31.64 over the past 52 weeks.
Without any answers from Cablevision, Wall Street analysts have been struggling to fathom the company's plans. Just last week, the company failed to win a bid to develop land on the west side of Manhattan, which will be used instead to build a football stadium and convention center that will compete with Cablevision's Madison Square Garden just a few blocks away. Now Cablevision is suing the city to block the project.
Also, the fate of the satellite business, called Voom, remains a mystery. The company gave Charles Dolan until March 31 to come up with a plan to arrange financing to buy the rest of the business's assets himself, but that deadline came and went without any word from Cablevision, and the company has declined to answer questions about it.
Investors, meanwhile, have been left to speculate about Cablevision's intentions in its apparent interest in Adelphia, which would reverse many years of winnowing down its cable holdings to the New York Area.
Fulcrum analyst Rich Greenfield postulated in a note to investors that the company had an "ulterior" motive in making the bid, such as upending a rival bid from Time Warner and Comcast in order to squeeze concessions from those two much larger cable players.
Merrill Lynch analyst Jessica Reif Cohen told investors in a note that Cablevision's reported interest in Adelphia was "surprising" and would "indicate a major change in strategic direction" for the company.
