1. Adelphia's financial distress was largely due to mismanagement by the Rigas family, who owned the company. The Rigases took on excessive debt through complex borrowing arrangements to finance the purchase of Adelphia stock. This overleveraged the company and contributed to its bankruptcy.
2. In bankruptcy proceedings, Adelphia's new management decided to pursue a Section 363 sale to sell the company assets to Time Warner and Comcast rather than a traditional reorganization. A 363 sale offered benefits like a quicker sale process but disadvantages included less opportunity for stakeholder negotiation and objection.
3. When evaluating the acquisition offers, management should consider factors like purchase price, probability of completion,
1. Adelphia's financial distress was largely due to mismanagement by the Rigas family, who owned the company. The Rigases took on excessive debt through complex borrowing arrangements to finance the purchase of Adelphia stock. This overleveraged the company and contributed to its bankruptcy.
2. In bankruptcy proceedings, Adelphia's new management decided to pursue a Section 363 sale to sell the company assets to Time Warner and Comcast rather than a traditional reorganization. A 363 sale offered benefits like a quicker sale process but disadvantages included less opportunity for stakeholder negotiation and objection.
3. When evaluating the acquisition offers, management should consider factors like purchase price, probability of completion,
1. Adelphia's financial distress was largely due to mismanagement by the Rigas family, who owned the company. The Rigases took on excessive debt through complex borrowing arrangements to finance the purchase of Adelphia stock. This overleveraged the company and contributed to its bankruptcy.
2. In bankruptcy proceedings, Adelphia's new management decided to pursue a Section 363 sale to sell the company assets to Time Warner and Comcast rather than a traditional reorganization. A 363 sale offered benefits like a quicker sale process but disadvantages included less opportunity for stakeholder negotiation and objection.
3. When evaluating the acquisition offers, management should consider factors like purchase price, probability of completion,
1. Adelphia's financial distress was largely due to mismanagement by the Rigas family, who owned the company. The Rigases took on excessive debt through complex borrowing arrangements to finance the purchase of Adelphia stock. This overleveraged the company and contributed to its bankruptcy.
2. In bankruptcy proceedings, Adelphia's new management decided to pursue a Section 363 sale to sell the company assets to Time Warner and Comcast rather than a traditional reorganization. A 363 sale offered benefits like a quicker sale process but disadvantages included less opportunity for stakeholder negotiation and objection.
3. When evaluating the acquisition offers, management should consider factors like purchase price, probability of completion,
a. How much is management to blame for Adelphia’s problems? Is it bad governance, bad management, bad business or bad capital structure? b. What could the banks and other lenders of Adelphia have done to discourage or prevent the Rigases from taking the actions that they took? c. What would you argue in the Rigases’ defense?
2. The Co-borrowing Arrangements (CBAs) and the Leverage Equity Purchase Plans (LEPPs) a. Is there anything that concerns you about Adelphia / Rigas family “co-borrowing” arrangements? b. Is there any positive aspect of the Rigases’ purchase of stock through the co-borrowing arrangement? c. Please explain and draw what happens to the payoff structure of LEPPs without company loan guarantees, with partial guarantees, and with full guarantees? d. What is your assessment of CBAs and LEPPs in Adelphia?
3. Adelphia’s Business a. If one ignores any alleged frauds by the Rigases, how viable was Adelphia’s business prior to the bankruptcy filing? Please use qualitative and quantitative arguments. What would a qualitative assessment show? What would a quantitative assessment show? b. Based on your analysis should Adelphia be restructured or liquidated?
4. Options in Chapter 11: In 2005, under pressure from Adelphia’s unsecured creditors, new management decided to put the company up for sale (i.e., a “363 sale”, named after Section 363 of Chapter 11 of the Code) rather than pursue a traditional stand-alone Chapter 11 reorganization plan. In answering this question, you need to familiarize yourself and consider the workings of bankruptcy proceedings and “debtor-in-possession” in the U.S. a. Are there any reasons why management should reconsider the decision? b. What considerations do you think are relevant in choosing between these two approaches to resolving financial distress (i.e., “363 sales” vs. stand-alone Chapter 11 reorganization)? What are the pros and cons of these different ways of exiting bankruptcy and how do they apply to Adelphia’s case? Please provide at least three benefits of a 363 sale for Adelphia and two disadvantages.
5. The Vulture Dispute: By the spring of 2005, two vulture investors had accumulated significant stakes throughout Adelphia’s capital structure, including debt issued by Adelphia’s Arahova subsidiary (held by Appaloosa Management). a. Would you rather be a creditor in the holding company or in a subsidiary? b. What are these hedge funds arguing about? How serious are their disputes? c. As Adelphia management, what would you do, if anything, to prevent these disputes from undermining Adelphia’s sale to Time Warner/Comcast? 6. The Offers for Adelphia: Which of the competing offers to purchase Adelphia’s assets should management accept? a. Please construct a diagram of the mechanics of the two agreements that are part of the Time Warner / Comcast bid. Why is the bid structure so complicated? b. Please provide a DCF valuation and Multiples valuation of Time Warner Cable’s (TWC) equity based on the Exhibits in the case. For the DCF, please use a WACC of 11%. If you need to use any other additional information or make any assumptions, please make it clear and justify it. What is your opinion about the value of the Time Warner Comcast offer? c. Should management consider the ownership and control structure of the combined entity? If so, why? d. What additional factors should management consider in choosing among competing offers? In answering this questions please analyze at least the following four factors: (1) what the bid is for; (2) the offer price; (3) the form of the bid; and (4) the probability of successful completion of the sale. e. Considering your analysis in (a), (b) and (c), as well as the additional factors you identified in (d), which competing offer should management accept? Please justify your reasoning.
