There's due diligence, and then there's Adelphia due diligence. Nobody knows that better than Vanessa A. Wittman, who for the past two years has served as chief financial officer for scandal-ridden cable operator Adelphia Communications Corp. (ADELQ) That role has placed the onetime investment banker at the epicenter of one of the most complex corporate reclamations ever -- the aftermath of the financial morass left by founder John Rigas and son Timothy, convicted of looting billions from the Coudersport (Pa.) company.
The next step in this saga is about to unfold: Adelphia, which filed for federal bankruptcy protection in June, 2002, with $19 billion in debt, is expected to announce by mid-April that it will sell its systems, which pipe cable TV into 5.2 million subscribers' homes from West Palm Beach, Fla., to Los Angeles. While Adelphia is still considering its options -- including a possible bid from Cablevision (CVC), in a teamup with some private equity firms -- the likely buyers will be Comcast (CMCSA) and Time Warner Cable (TWX), with a combined offer of more than $17 billion. That price would reflect just how coveted the systems are, amounting to about twice Adelphia's peak market cap of $8.4 billion in 2000. The sale will have followed a tortuous, year-long auction process in which 20 bids were submitted for all or various pieces of the company. More than 39,000 pages of financial and operational data were released, and 150 meetings were held with potential bidders. "This has been a multidimensional chess game like I've never seen before," says Nancy B. Peretsman, a managing director at Allen & Co., which has been hired by Adelphia to help conduct the auction. "Vanessa has been hugely impressive," says Peretsman. "She has been able to toggle between handling the most minute details and thinking about the larger picture, all with very little sleep."
For the 37-year-old Wittman, it has been the most demanding job yet in a career that has taken her from Morgan Stanley (MWD) to a stint in corporate development at Microsoft (MSFT) to handling the bankruptcy of telecom startup 360networks. At Adelphia she has overseen the bankruptcy even as she has done her "day job," she quips, being CFO.
The creditors have also demanded a plan for Adelphia to emerge from bankruptcy as a standalone entity. Wittman didn't let the banks dictate terms for exit financing but instead held an auction. She was able to raise $8.8 billion for Adelphia from four banks without any upfront fees. In meeting after meeting, no matter how heated the discussions, Wittman often disarmed attendees with an ability to keep her cool. "I want to go for the jugular," says one outside lawyer, "and she just keeps a poker face." Throughout all the complex maneuvers, adds Jeffrey A. Sine, Wittman's former boss at Morgan Stanley who now, as vice-chairman of UBS Investment Banking, is running the auction with Peretsman, Wittman "has maintained her equanimity and sense of humor."
With Adelphia CEO William T. Schleyer and President Ronald Cooper, both veteran cable execs, Wittman also designed an operating budget quickly so that $1.5 billion in financing could be tapped, ensuring continued upgrades of Adelphia's cable lines.
All the while, Wittman was negotiating with legions of angry creditors and shareholders, as well as cooperating with federal investigators. In a Mar. 28 government filing, Adelphia reported offering $725 million to settle accounting-fraud allegations with the Securities & Exchange Commission and the Justice Dept. The Rigases are set to be sentenced on Apr. 18. Another son, Michael, faces a new trial in October after a jury deadlocked over several charges in his case.
When Wittman accepted the offer to become CFO in February, 2003, she knew it would be a huge challenge. But she says nothing could have prepared her for the level of mismanagement she uncovered. Receipts were dumped, literally, in shoe boxes. Monthly cable rates, which for most operators usually vary by region and type of franchise agreement, hadn't been reviewed in years. So customers in Coudersport were paying the same as those in Beverly Hills. At the start of 2003 only 70% of Adelphia's subscribers could receive high-speed data, well below availability in the rest of industry. (Today, 96% can get the service.)
Most unsettling was the discovery that Adelphia had been reporting 40% operating margins that were actually 30%. Executives had been assigning expenses to the capital budget rather than reporting them as operating expenses, thus enabling them to boost margins. In December, after a team of 100 accountants under Wittman's charge reviewed 7 million ledger entries, Adelphia released new, audited earnings by reporting billions of dollars in losses for the years 2001 through 2003. "I can't tell you how many times we have looked at each other and said: 'Oh my God,"' says Wittman, who earned a salary and bonus of about $1.9 million in 2003, the last year executive pay was disclosed.
Even if the federal government accepts Adelphia's settlement offer and a sale goes through, months of work lie ahead to get various approvals from creditors and a federal bankruptcy judge. Adelphia is also suing the Rigases to try to take control of some cable systems the family owns privately that Adelphia manages. So it could be at least 9 to 12 months more before there's true closure.
In the meantime, Wittman's old company, Microsoft, is looking for a CFO. And Viacom Inc. (VIA) may have a couple of spots now that it plans to split in two. Wittman is certain to be on those short lists. But for now, she says, she isn't thinking beyond her next 16-hour day: "There's still a lot of work to be done here." Even so, the worst of the Adelphia debacle appears to be over.
By Tom Lowry in New York