Adelphia Communications Corp.'s Bankruptcy case study focuses on the cable television company owned by the Rigas family. The operation as a TV cable service provider started in 1972. In 2002, the company filed voluntary petitions under Chapter 11 of the Bankruptcy Code. This case study aims to provide the best solution for how management should restructure the company.
Stuart C. Gilson; Belen Villalonga
Harvard Business Review (208071-PDF-ENG)
October 19, 2007
Case questions answered:
- Considering the current financial condition of the Adelphia Communications Corp, what will be the appropriate decision for Adelphia Communications Corp ’s management?
- How should the management restructure the company (by using Private equity, optimum debt, and equity, or debt-equity swap)? Or should the management liquidate the company?
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Case answers for Adelphia Communications Corp.'s Bankruptcy
This case solution includes an Excel file with calculations.
Company Overview – Adelphia Communications Corp
Adelphia Communications Corp. is a Cable television company owned by the Rigas family. In 1972, it started its operation as a TV cable service provider. The corporation highly focused on acquiring other peer companies like Frontier Vision, Olympus, Arahova, etc. In June 2002, Adelphia filed voluntary petitions under Chapter 11 of the Bankruptcy Code.
- US is the world’s largest economy by nominal GDP and the second-largest by purchasing power parity (PPP).
- The US has a highly diversified, world-leading industrial sector.
- Growth in different business segments indicates the higher disposable income of the people.
- The nation’s economy is fueled by abundant natural resources, a well-developed infrastructure, and high productivity.
Industry analysis (Porter five forces)
- The threats of new entrants in this industry are relatively low.
- Rivalry among existing competitors is high.
- The bargaining power of suppliers is high as there is a limited number of suppliers.
- The bargaining power of buyers is high.
- The threat of substitutes is high.
- The US government has recently allowed cable operators to revise service prices as their own.
- Higher government support for low environmental impact.
- The availability of a skilled labor force reduces costs.
- Companies serving in this industry are exposed to multiple taxations.
- Increment of service price negatively affects a number of customers.
- Influenced deeply by the socio-cultural forces of different markets.
- The changing socio-cultural trends and people’s preferences are positively affecting people’s preferences to get a cable connection.
- The more innovative the company, the higher is its market share.
- Customers’ focus shifted towards cable connection with high bandwidth to enjoy regular and special shows.
- As the industry is mostly dominated by family-owned businesses, so the companies are subject to multiple legal procedures.
- Cable Communications Act 1984 has higher legal impacts.
- The laws related to environment-friendliness and radiation from Cable/Antennas are growing stiffer around the globe.
Company analysis (SWOT analysis for Adelphia Communications Corp)
- Comprehensive product portfolio.
- A higher number of subscribers with regular and premium subscriptions.
- Strong presence in different locations.
- The underperformance relative to major competitors.
- Operating expenses and other expenses are quite high.
- Involved in various legal proceedings and claims.
- Driven by technology and innovation.
- Initiate operation as an independent company after the reorganization.
- Reduction of expenses on noncore entities and personal aspects of Rigas.
- Higher dependence on acquisition to increase the number of subscribers.
- A higher amount of debt.
- Higher labor and administrative expenses.