Adelphia Recovery Trust Seeks
Recovery from Former Venture Partner
Adelphia Recovery Trust v. FPL Group,
Inc., et al., U.S. Bankruptcy Court,
Case No. 02-41729 (April 17, 2014)
In this case, the Adelphia Recovery
Trust (“Trust” or “Plaintiff”) sought
to recover $150 million related to
Adelphia Communications Corp.’s
(“Adephia”) repurchase of Adelphia
stock held by FPL Group, Inc. (“FPL”
or “Defendant”). FPL originally
purchased Adelphia stock as part of
its joint venture with Adelphia.
Background
The Defendant purchased Adelphia
stock as part of its divestiture of a
two-thirds economic interest and
a 50% voting interest of its cable
business, Telesat Cablevision Inc.
These interests were divested into a
joint venture between an Adelphia
affiliate and FPL called Olympus
Communications. This was a
vehicle for FPL to divest itself of the
management responsibilities of its
cable business and to avoid antitrust
review.
The Defendant had its Adelphia
common stock repurchased in
January 1999 to end the joint
venture. The Plaintiff argued that the
consideration given to the Defendant
for the repurchase of the Adelphia
stock was fraudulent because
Adelphia was allegedly insolvent at
the time of the repurchase.
In order to determine solvency, the
Plaintiff’s expert used a discounted
cash flow (“DCF”) analysis to
determine the enterprise value of
the business. The Defendant’s expert
used comparable company and
precedent transaction methodologies.
The Court was persuaded by the
Defendant’s expert’s valuation
methodology, which applied a value
per subscriber multiple. This multiple
is generally used to value companies
in the cable industry. The Plaintiff
relied on his own projections in the
DCF analysis.
The Court’s Conclusion
The Court ultimately ruled in favor of
the Defendant’s valuation analysis.
Based on the Defendant’s expert’s
analysis, Adelphia was considered
to be solvent at the time of the
repurchase of Adelphia common
shares. The Plaintiff could not prove
that Adelphia was insolvent when it
repurchased Adelphia stock from the
Defendant.
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