Stock of the Day
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Adelphia Communications (ADELQ)
Time Warner, Comcast to buy Adelphia
Media group Time Warner Inc. and its bidding partner, top U.S. cable TV operator Comcast Corp. have reached a deal to buy bankrupt cable operator Adelphia Communications Corp. for nearly $18 billion in cash and stock. Adelphia, the nation's fifth-largest cable company with more than 5 million subscribers, collapsed in the wake of an accounting and corporate looting scandal involving the founding Rigas family, and has been operating under bankruptcy protection since June 2002.
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The companies met with a bankruptcy court judge Thursday to discuss procedures for completing a purchase and a final deal could be days away, the newspapers reported. The acquisition deal calls for Time Warner and Comcast to put up $12 billion in cash and slightly more than $5.6 billion in stock, which would be issued in a new company that would be created out of Adelphia and Time Warner's cable unit upon completion of the purchase. A rival lower, all-cash bid of $16.5 billion that was recently received from Long Island, N.Y.-based Cablevision Systems Corp. could still upset the deal with Time Warner and Comcast. However, Cablevision's bid lacks sufficient financial details and commitments to prevent the transaction.
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Combining Adelphia with Time Warner Cable would create a cable behemoth, second only to Comcast. Comcast and Time Warner teamed up because buying Adelphia would give Comcast ability to swap its 21 percent stake in Time Warner's cable business in exchange for about two million of Adelphia subscribers. Meanwhile, Time Warner wants to increase the size of its cable business partly to get better deals from programmers and other vendors. Speaking to investors earlier this year, Time Warner Chief Executive Richard Parsons said that "It's a business that gains value as you build scale." For instance, he said that a larger cable operator has more leverage to negotiate prices with cable programmers. And the Time Warner Cable relationship can also benefit its sister cable channels, such as TNT, TBS and CNN, when they negotiate with cable and satellite operators, he said.
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Time Warner's 6.875% bonds due 2012 were recently quoted six basis points tighter at 64 basis points over Treasurys. Its 7.7% bonds due 2032 were five basis points tighter at 135 basis points over Treasurys. Comcast's 8.375% bonds due 2013 were recently trading six basis points tighter, since Thursday's close, at 78 basis points over Treasurys. "From what we have heard so far on the deal structure, it's one of those rare transactions that's s win-win for all concerned," said Rohit Sethi, senior analyst at hedge fund Aladdin Capital, with over $3 billion in fixed income assets. "It's a great deal for Time Warner and Comcast and is very neutral for their bondholders."
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Time Warner recently traded at $18.23, up 35 cents, or 2%, and Comcast recently traded up 28 cents, or 0.8% while Adelphia was unchanged at 25 cents.
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Profile |
Adelphia (Greek for "brother") Communications provides cable TV service to about 5.3 million subscribers in 31 US states and Puerto Rico. The company spun off to shareholders its 79% stake in telecom services provider TelCove (formerly Adelphia Business Solutions). Adelphia Communications grew rapidly through acquisitions, but the Rigas family was forced to give up control of the company in 2002, and Adelphia filed for Chapter 11 bankruptcy protection that year. Adelphia originally filed a $9 billion reorganization plan, but later announced plans to sell the company. Founder John Rigas and son Timothy were convicted on conspiracy and fraud charges in 2004.
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