Cablevision May Enter Bid for Adelphia

Cablevision Systems Corp. may be preparing to enter the bidding war for one of the cable TV industry’s last remaining prizes: Adelphia Communications Corp., the largest cable TV provider in Southern California.

Two leading U.S. investment firms have asked New York-based Cablevision to join them and help sweeten their all-cash offer of about $15 billion for Adelphia, sources said Tuesday.

The investment firms, Kohlberg Kravis Roberts & Co. and Providence Equity Partners, are trying to top a joint bid of about $17.6 billion submitted by Time Warner Inc. and Comcast Corp., the nation’s two leading cable TV providers.

With Cablevision’s 3 million subscribers in New York and the company’s vaunted management team, led by President Tom Rutledge, KKR and Providence may be able to top the bid by Time Warner and Comcast, analysts said.

“We view the news as a negative for Time Warner and Comcast,� said Jessica Reif Cohen, an analyst at Merrill Lynch, who said a potential bidding war could also delay the outcome of the Adelphia auction until April.

After receiving bids in late January, Adelphia had indicated it would pick a winner by Thursday.

Neither Cablevision, KKR nor Providence would comment on the talks, first reported in the New York Times.

Some analysts speculated Tuesday that Cablevision’s 79-year-old founder, Charles Dolan, might be poised to sell his controlling stake in the cable company as part of an Adelphia deal with KKR and Providence. That would allow him to keep afloat his pet project, a fledgling satellite TV venture called Voom.

Cablevision’s shares fell $1.65, or 5.7%, on Tuesday, closing at $27.35 on the New York Stock Exchange.

The shares had been trading near a 52-week peak on speculation that the company would be sold or that Voom would be shut down.

Dolan also may be contemplating an expansion of his cable systems as a way to remain relevant as consolidation has left Cablevision overshadowed by bigger competitors.

In recent years, Dolan has sold off all but his New York cable systems to concentrate on his entertainment assets, which include Madison Square Garden, the New York Knickerbockers basketball and Rangers hockey teams, regional sports networks and channels such as American Movie Classics.

But Dolan may be interested in Adelphia in part because he has been outmaneuvered by his larger cable rivals. For instance, by striking a joint venture last year with Chicago’s four major professional sports teams, Comcast -- the largest cable carrier in that city -- decimated the value of Cablevision’s local sports network, which previously aired the teams’ games.

More recently, Time Warner dropped from its New York cable systems Cablevision’s Madison Square Garden sports network because of a dispute over rates.

Still, analysts said the Dolan family was unlikely to retain control of its company in any deal to take over Adelphia involving KKR and Providence.

“It would be unlikely that the private equity partners would allow the Dolans to have the type of super-voting power they currently have,� said Richard Greenfield, an analyst at Fulcrum Global Partners.

What’s more, although an acquisition of Adelphia would triple Cablevision’s size, analysts said the combined companies would continue to lack the leverage needed to extract programming discounts or protect its entertainment assets.

Analysts also doubt that Cablevision and its financial partners could outbid Time Warner and Comcast because Cablevision would enjoy far fewer cost savings from a marriage with Adelphia. Unlike Time Warner and Comcast, Cablevision has fewer systems that are contiguous with Adelphia’s, reducing the possible operating efficiencies from a union.

In the case of Time Warner, an acquisition of Adelphia would increase its market share in Los Angeles to more than 70% from less than 20% today.

“A Cablevision-Adelphia combination would deliver none of these synergies,� said Craig Moffett, an analyst at Sanford C. Bernstein & Co.

Some analysts speculated Tuesday that Cablevision was being used by Adelphia’s creditors to keep the KKR-Providence bid alive to extract a higher price from Time Warner and Comcast. Adelphia owes creditors $20 billion and put itself on the auction block last year as part of a plan to emerge from bankruptcy protection.

The company filed for Chapter 11 in June 2002 after the ouster of founder John Rigas amid an accounting scandal. Rigas and his son Timothy were convicted in July of looting the firm and cheating investors out of billions of dollars. They are to be sentenced next month.

Adding to the confusion over Cablevision’s intentions, Dolan indicated in a federal filing Monday that he was willing to bankroll Voom with $400 million of his own money.

Analysts said the filing was evidence that Dolan hadn’t found the necessary backing to keep Voom alive and was seeking to sell the cable systems as a result.