Adelphia Comes Clean

Can Vanessa Wittman help bring scandal-wracked Adelphia out of bankruptcy -- and back into investors' good graces?

Under New Management(s)

The first attempts to right the company after the Rigases left didn’t go as smoothly as many had hoped. Although John Rigas resigned in May 2002, the board remained full of his cronies. The new CEO, a retired Fleet Bank executive named Erland Kailbourne, was a longtime friend.

Under pressure from creditors and shareholders, the board replaced Kailbourne in February 2003 with William Schleyer, former CEO of AT&T Broadband and a respected cable-industry veteran. Schleyer brought along his right-hand man at AT&T Broadband, Ronald Cooper. There was controversy over the duo’s compensation—almost $65 million over two years, contingent on emerging from Chapter 11 and hitting certain valuation targets—and as a result, the package was scaled back somewhat.

The hiring of Wittman went smoothly, but the departure of Christopher Dunstan, who was hired by Kailbourne to replace Timothy Rigas as CFO, did not. In his resignation letter, Dunstan alleged that Adelphia failed to appoint an independent investigator to examine transactions with one of its directors. The company later negotiated a settlement with the former CFO that included more than $700,000 in severance, and he agreed to help with any continuing investigations and court proceedings.

But if Dunstan was gone, his charges lingered. Many wondered why board members, who somehow failed to notice the Rigas family’s alleged plundering, were allowed to keep their seats even after a new management team was installed. In January 2003, shareholders filed suit aiming to “remove the company from its continued domination by a Rigas-elected board of directors.” In June, four board members appointed during the Rigas era finally agreed that they would step down when the company emerges from bankruptcy.

Still, the interim team is to be commended, maintains Wittman. “The prior board did a stand-up job of stepping into a very difficult situation and making hard decisions,” she says. “They basically had to take the family out of a family-run business. They kept the wheels from flying off.”

Now the wheels are snarled in a tangle of litigation. In addition to multiple class-action shareholder suits, Adelphia itself has sued the Rigas family and the company’s former auditor, Deloitte & Touche LLP. Most recently, the creditors’ committees filed a lawsuit on Adelphia’s behalf against a group of more than 450 banks, including Bank of America Corp. and Wachovia Corp., which they accuse of knowing about the improper loans. “The pending litigation has slowed everything,” explains Kramer.

Sleepless Nights

Despite these initial missteps, industry experts say Adelphia has done a remarkable job of getting its house in order quickly. One early decision was to move the company from Coudersport to Denver, where Schleyer and Cooper had worked at AT&T Broadband before it was sold to Comcast. “It was a smart move,” comments Mark Kersey, a senior analyst at Current Analysis Inc., a Sterling, Virginia-based technology market research firm. “It would be [much more] difficult to attract top management to Couders-port [than to Denver].”

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