According to The Wall Street Journal the deal includes $12 billion in cash plus slightly more than $5.6 billion in shares of a new company created from Adelphia and Time Warner's cable units. Comcast would contribute $2 billion cash and, in a tax-free maneuver, swap its 21% stake in Time Warner's cable business in exchange for about 2 million Adelphia subscribers, according to The New York Times, citing unnamed executives.
Representatives from the three cable companies declined to comment.
Awaiting court approval
The tentative $17.6 billion deal needs to be approved by both a bankruptcy judge and Adelphia creditors, which could take up to two weeks -- or longer if 11th-hour bidder Cablevision ups its $16.5 billion offer, said one analyst following the situation -- and would result in Comcast and Time Warner each grabbing a share of Adelphia’s 5.3 million subscribers in 31 states.
The most likely outcome has Time Warner acquiring about 3 million subscribers in Los Angeles, Ohio and upstate New York markets and Comcast picking up the remaining 2 million subscribers.
Comcast has 21.5 million subscribers and Time Warner has 11 million.
The deal was challenged earlier this week when Cablevision, the sixth-largest operator with 3 million subscribers in the New york city area, entered the game with a $16.5 billion bid. At this week’s cable industry trade show, Jeff Bewkes, chairman of the entertainment and network group at Time Warner, told reporters: "I'm not sure that we need to counterbid.”
Greenwood Village, Colo.-based Adelphia has been in bankruptcy protection since 2002, when founder John Rigas and two of his sons were charged with pilfering millions of company dollars for personal use and misrepresenting the company's finances. Mr. Rigas and son Timothy were found guilty of the charges and are awaiting sentencing.
Cable operators see big business in video-on-demand services and growing the reach of their subscriber bases becomes an increasingly important tool in luring marketers to the table. Comcast now offers on-demand services to more than 8.6 million customers. Most of its on-demand programming is free. The company estimates on-demand views for February at more than 80 million, and projects that in 2005 its customers will view on-demand programming more than 1 billion times.
Speaking at the American Association of Advertising Agencies Media Conference last month, Comcast CEO Brian Roberts said Comcast's goal is to redefine itself as a "new products company" that will offer a range of programming, from movies to special programming such as its "NFL Replay," introduced last fall.
Time Warner's urban expansion
For Time Warner, however, it's not sheer subscriber numbers that matter, but where those subscribers come from. Acquiring Adelphia's subscribers in Ohio, particularly along the densely populated Lake Erie shore, which includes the Toledo, Sandusky and Cleveland markets, and its heavy coverage in western New York's Buffalo market, would fit within Time Warner's strategy of concentrating business in urban areas.
According to the Time Warner's Web site, 75% of its subscribers are located in metro areas of 300,000 or more. Furthermore, picking up Adelphia's Los Angeles subscribers -- and perhaps also Comcast's L.A. distribution, as part of the deal -- would make Time Warner the dominate player in that market as well.