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|  | SEPTEMBER 28, 2004
By Steve Rosenbush Joining Forces in the Battle for Adelphia Comcast and Time Warner are exploring an alliance to buy the bankrupt cable outfit. If their bid wins, then they divide the spoils The auction of bankrupt cable operator Adelphia Communications (ADELQ ) took an unusual twist Sept. 27, when the two largest potential bidders -- Comcast Communications (CMCSA ) and Time Warner (TWX ) -- announced that they were contemplating joining forces. Adelphia filed for bankruptcy in 2002 after investors discovered $2.3 billion in secret debt. No deal is imminent. One person familiar with Time Warner and Comcast said the process was in the early stages and that the companies had merely signed a confidentiality agreement with Adelphia. Nor has any bid been placed on the table, meaning negotiations could continue for months. Why would rivals agree to such a pact? To avoid overpaying for something that both want and each figures can be carved up amicably, rather than competing with each other and a band of hungry bidders. The accounting scandal that led to the fall of Adelphia's founding Rigas family set up a battle over how much the remains of the nation's fifth-largest cable company are really worth. BITS AND PIECES. In February, a proposed plan of reorganization valued Adelphia at about $17 billion. Blackstone Group and other investors decided they could do better by selling Adelphia and forced an auction of its assets. Earlier this year, some investors indicated that they thought the assets, which include systems in Los Angeles and other markets, might fetch between $20 billion and $21 billion. Now an elaborate duel between Adelphia's current owners and its suitors is under way. Adelphia's investors hired investment banks UBS and Allen & Co. to auction the assets -- an approach that has proven a good way to get the highest possible price, as demonstrated when Merrill Lynch auctioned AT&T Wireless (AWE ) for $41 billion earlier this year. Cingular, the wireless giant owned by BellSouth (BLS ) and SBC Communications (SBC ), outbid Vodafone (VOD ). But Vodafone CEO Arun Singh bid so high in his failed effort to acquire AT&T Wireless that many investors have yet to forgive him. Comcast and Time Warner don't want to be drawn into such a trap. By joining forces, each would eliminate the biggest potential rival. While Adelphia could end up with as many as 20 bidders vying for various pieces of its network, Comcast and Time Warner working as a team would likely make for a very different auction. One person familiar with Comcast's strategy said a cooperation agreement with Time Warner could actually benefit Adelphia if it were to simplify the bidding process. With friends like that, one hardly needs enemies. An alliance is a clever strategy -- and it might work. While another big bidder could come forward and make a play for the entire Adelphia system, it's more likely that other interested parties will bid only on individual systems or acquire them from Comcast and Time Warner. WHO GETS WHAT? Once Comcast and Time Warner figure out which outfit gets Los Angeles, they should be able to divide the rest without a fuss. Time Warner is most likely to buy systems in Buffalo, Western Pennsylvania, and Ohio, while Comcast is viewed as the most likely acquirer of Adelphia's Florida systems. Also, on Sept. 27, Comcast and Time Warner said they had reached an agreement in which Comcast will reduce its share of Time Warner Cable, which could facilitate more cable consolidation down the road. Comcast will sell back stock in Time Warner Cable, reducing its share from 21% to 17%. In return, Comcast will get 90,000 subscribers and $750 million in cash. If Time Warner and Comcast manage to acquire Adelphia, Comcast could trade its remaining Time Warner Cable stake for some of Adelphia's systems. Of course, despite the Adelphia auction, the drama that left many investors devastated isn't expected to end any time soon. Adelphia would like to complete the sale by yearend, which means it will drag on at least another three months. And if Adelphia isn't happy with the bids that emerge, it wouldn't come as a surprise to see the process continue until next year. Nothing about the current pace of events suggests a quick end.  Rosenbush is a senior writer for BusinessWeek Online in New York Edited by Beth Belton
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