Adelphia Communications A Case Study by myf17521

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									Adelphia Communications:
            A Case Study


        Jim Mahar
       Carol Fischer
St. Bonaventure University
                       The Rise of Adelphia
• 1952: John Rigas
  borrowed money to open a
  movie theatre in
  Coudersport, PA
• Film salesperson urged
  him to get into the ground
  floor of the cable industry
• Rigas purchased his first
  cable franchise for $300
• 1972: Adelphia (from the
  Greek word for Brothers)
  was incorporated
                   The Rise of Adelphia
Key Growth Strategies
• Geographically dense operations
• Emphasis on customer service
• Focus on suburbs (as opposed to metropolitan
  areas)
• Aggressive acquistions
1986: IPO – shares widely held & traded on
  NASDAQ
1999: stock traded as high as $87 per share
      Expansion into New Markets

• By 1999, Adelphia was 6th largest cable
  company in US & had expanded into
  – Telephony business (Adelphia Business
    Solutions)
  – Sports radio station
  – Sports cable television channel
  – Many other smaller subsidiaries
A Family-Run Firm
   • John Rigas, CEO &
     Chairman of the Board
   • Son Tim Rigas, CFO
   • Son Michael Rigas, VP of
     Operations
   • Son James Rigas, VP of
     Strategic Planning
   • Son-in-law Peter Venetis,
     Board of Directors
   Family owned 77% of voting
     rights
   A Family with strong ties to the
                      Community
• Company headquartered in Coudersport, PA
  – 1990 Population: 2,854
• Donated cable & internet connections to
  local schools
• Sponsored youth sports, cultural events
• Family purchased Buffalo Sabres Hockey
  Team
• Personal donations to needy neighbors
    Adelphia’s Financial Structure
• High fixed costs
• Highly leveraged
   – Public financing at corporate level
   – Private debt placements at subsidiary level
   – Some public debt at subsidiary level, related to
     acquisitions
• Parent company held control, while subsidiaries
  were responsible for about 2/3 of the firm’s debt
• Parent company largely protected in event of
  bankruptcy of individual subsidiary
                     Hard Times for the
                        Cable Industry

In late 1990s, cable industry began to falter, as
  it was hard hit by:
• Technology slowdown
• Slowing economy
• Increased competition
• Over-capacity problems
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                                                                 Adelphia Stock Price (data from http://finance/yahoo.com )




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                                                                                                                              Hard Times for Adelphia
    The 3/27/02 Analysts Meeting:
                 A Critical Event

• Oren Cohen, Merrill Lynch, questioned how
  the Rigases could afford to buy stock worth
  over $1 billion since they were collectively
  making less than $2.5 million at Adelphia
  – They must be borrowing, but from whom?
  – Now that stock prices had fallen so much, how
    could they repay the loans?
• Stock price fell from $22 to $16.70
                   The Fall of Adelphia
• Within days, Adelphia announced it had an
  additional $2 billion of debt (later amended to
  over $3 billion owed by Rigases & their
  companies)
• SEC announced it was investigating
• Investigators uncovered shoddy accounting
  practices, numerous instances of self-dealing, &
  fraud, including comingling of corporate & family
  funds
                   Chronology of Events
4/1/02: Adelphia delays filing annual report
4/2/02: Shareholder lawsuits filed
5/8/02: Adelphia solicits bids for cable systems in
  LA and the Southeast US
5/15/02: John Rigas resigns as Pres & CEO;
  NASDAQ stops trading in Adelphia stock
5/16/02: Tim Rigas resigns from CFO
5/23/02: John, Tim, Michael & James Rigas resign
  from Board of Directors
                   Chronology of Events
5/24/02: Adelphia discloses details of Rigas family’s
  use of company assets for personal use
6/3/02: Adelphia’s stock is delisted
6/9/02: Adelphia dismisses Deloitte & Touche
6/11/02: Peter Venetis (Rigas’s son-in-law) resigns
  from Board
6/14/02: Adelphia hires PriceWaterhouseCoopers &
  terminates employees “whose primary function
  was to provide service to members of the Rigas
  family”
Chronology of Events
     6/17/02: Adelphia misses
       $96 million in interest
       & dividend payments
     6/21/02: Adelphia
       arranges financing for
       reorganization
     6/25/02: Adelphia files
       for bankruptcy
     7/24/02: The Arrests
                               Postscript

11/6/02: Adelphia sues Deloitte & Touche for
  “professional negligence, breach of
  contract, fraud & other wrongful conduct.”
11/14/02: James Brown, former VP of
  Finance, pleads guilty to fraud

								
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