Adelphia buy gives TW a local leg up
L.A. cable picture clearer
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It's little wonder that Time Warner chair-CEO Richard Parsons has been so keen on the $17.6 billion deal, agreed to in principle late last week. TW Cable would suddenly rocket ahead to be the dominant player in the country's No. 2 television market.
Two-thirds of L.A. market
Adelphia controls roughly 40% of the L.A. area, with 1.1 million customers. TW Cable would pick up those customers, along with some 850,000 Comcast customers. Where there were numerous players with sizable customer rolls --including Adelphia, TW Cable, Comcast, Charter and Cox -- TW Cable could suddenly control 65%-70% of the L.A. market.
Wall Street analyst Craig Moffett of Sanford C. Bernstein said it's actually a good thing for customers.
"It will mean more investment in infrastructure, and that in the end will mean better service and more features. Oddly enough, the L.A. market has been so fragmented that it is a technology laggard," Moffett said.
"Historically, it's been very difficult for a cable operator to market to its customers in L.A. because no one operator has sufficient scale to make marketing efficient," Moffett said.
The Adelphia sale would mark the first major media deal of 2005, contrasting sharply with a movement toward deconsolidation in the media and entertainment biz as reflected in Viacom's proposed breakup into two companies.
Still, Time Warner's stock barely budged on Friday. Shares closed up 9¢ at $17.97. Comcast shares fell 21¢ at $33.07.
Topper gets $22 mil
Also Friday, Comcast disclosed in a proxy statement filed with the Securities and Exchange Commission that chair-CEO Brian Roberts stands to receive $22 million in compensation for 2004. His father, company founder and board member Ralph Roberts, stands to receive $33.6 million.
Brian Roberts received $2.1 million in salary, a $6.9 million bonus and stock options valued at $9.1 million. Ralph Roberts, who continues to work full time, received a salary of $1.7 million, a bonus of $1.8 million and stock options valued at $5.7 million.
Company also revealed in the filing that shareholders will once again vote on a proposal to weaken Brian Roberts' control of one-third of all votes at annual meetings. A similar measure failed at last year's shareholder gathering. The 2005 shareholder meeting is skedded for June 1.
Sweet prize
For Parsons, the Adelphia prize couldn't be sweeter. Not only would TW Cable get Los Angeles, it also would be Time Warner's first major acquisition since the doomed merger with AOL.
To boot, Time Warner could finally opt to take TW Cable public as a standalone company. Cable operation would jump from 10.9 million to 14.2 million customers, outpacing satcasting rivals DirecTV (13.9 million subs) and EchoStar (10.9 million).
TW Cable would still come in well behind market leader Comcast, which has 21.5 million subs. Factoring in the 2 million Adelphia subscribers it will gain, Comcast would boast 23.5 million subs.
Moffett and other analysts say the Adelphia deal is a clear win for Comcast, which will use the opportunity to unwind its 21% stake in TW Cable without having to pay as much as $1.2 billion in taxes.
The TW Cable/Comcast bid still must be cleared by a federal bankruptcy judge, the Adelphia board and Adelphia creditors. Insiders expect the final deal to be announced this week or next, but cautioned there could be unexpected delays.
Cablevision still a player?
Some Wall Streeters continue to speculate that Cablevision could still try to up its $16.5 billion bid for Adelphia but doubt Cablevision would succeed, citing the discipline of the TW Cable/Comcast bid.
Most analysts were sweet on news that Adelphia has informally accepted the TW Cable/Comcast bid, saying it could help ease the cable industry's doldrums.
"The overhang of Adelphia weighted heavily on Time Warner and to some extent on the cable sector. With the added clarity, we believe Time Warner and the sector could see additional investors," Vintage Research analysts Alden Mahabir and William Kidd wrote in a note.
Washington antitrust regulators would have to eyeball any final deal hammered out among Time Warner Cable, Comcast and Adelphia.
