Rigas family gives up control of Adelphia

After weeks of investor pressure and media speculation, the Rigas family has given up control of Adelphia Communications, a company they founded half a century ago that has grown to the sixth largest cable operator in the country.

John Rigas, who served as Adelphia’s CEO for fifty years until his resignation earlier this month, and his sons, Timothy, Michael and James, have resigned from the company’s nine-member board of directors. Michael and James Rigas have also resigned their executive positions with the company. The board has also requested the resignation of Peter Ventis, a son-in-law of John Rigas. The family has the right to fill two of the five vacant seats, but may not choose family members.

The resignations come in the face of an controversy surrounding a co-borrower relationship the family entered into with Adelphia, under which cable franchises owned by the Rigas’ that were separate from Adelphia received money, some of which was used to buy Adelphia stock. Under the terms of the borrowing arrangement, both parties are fully responsible for the money borrowed.

The move was made to shore up investor confidence in the company, which is currently appealing to its banks for the cash it needs to stay afloat.

According to one analyst, the move was necessary but it might not be enough. “I think they had to do this in order to get the company back on stable footing,” said Cynthia Brumfield, president of Broadband Intelligence. “But it’s quite possible that it’s just too late. Adelphia is facing so many problems even after this deal.”

The agreement between Adelphia and the Rigas family contains a flurry of debt transfers and requirements for use of cash flow. Once everything is added up, Adelphia said it will likely add $2.5 billion of debt to its balance sheet due to the co-borrower agreements with the Rigas family. In exchange, the family is committing money from their separately owned cable franchises toward debt repayment and will transfer about $1 billion in assets to Adelphia, including cable properties of Adelphia’s choosing.

Further, all Adelphia stock owned by the Rigas will be used as security for the balance of the family’s obligations. This stock will be placed in a voting trust until all of the family’s obligations to the company are met. A previously established committee of outside board members will vote these shares through the company’s 2004 annual meeting. Afterward, the shares will be cast in proportion to the votes cast by all other shares.

In addition to announcing the resignation of the Rigas family, Adelphia provided an update on its financial situation. As previously announced, the company missed approximately $48.5 million in debt and dividend payments on preferred shares and will be in default under these indentures and others if the situation is not resolved. In addition, the company said it is not in compliance with covenants requiring it to receive approval from independent members of its board before entering into transactions with affiliates.

To meet its immediate financial obligations, Adelphia is discussing additional funding with its banks while exploring asset sales.

Another area concern for the company is its status on the Nasdaq National Market. The company is currently awaiting a ruling from its May 16 delisting hearing. If it’s removed from the exchange, it will be required to offer to purchase $1.44 billion in debt.