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Adelphia Communications:

A Case Study

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

Adelphias 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 firms 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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Hard Times for Adelphia

Adelphia Stock Price (data from http://finance/yahoo.com )

100

90

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20

10

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 familys
use of company assets for personal use
6/3/02: Adelphias stock is delisted
6/9/02: Adelphia dismisses Deloitte & Touche
6/11/02: Peter Venetis (Rigass 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