Cash Readiness Tips Networx Deal
June 28, 2007

Although two other firms seeking to buy Memphis Networx offered bids up to 77 percent higher than the one selected, neither had the cash-in-hand wherewithal of the successful suitor, documents released Wednesday show.

American Fiber Systems submitted a proposal of $13.5 million for the fiber-optics cable venture partly owned by the Memphis Light, Gas and Water Division. A firm called BTi Corporate offered a package worth $20 million, according to bid documents from the two firms.

The bids from American Fiber and BTi -- which were among three finalists in a secret bidding process -- were higher than the $11.5 million package from Communications Infrastructure Investments, a Colorado holding company.

Yet unlike CII, which is fully financed and could close on a transaction with 30-45 days, both American Fiber Systems and BTi would have to raise funds for the purchase, according to an analysis of the bids by the investment banking firm helping Networx find a buyer.

The owners of the fiber-optic firm -- MLGW and its private partners -- reached an agreement in principal this month to sell the financially hobbled Networx to CII. The deal would result in the municipal utility recouping only $994,000 of the nearly $28.6 million it has sunk in the venture.

The sale must be approved by the MLGW board of commissioners, which is expected to vote on the matter July 5.

The MLGW meeting, which Memphis City Council members have been invited to attend, will feature a presentation by The McLean Group, the banking firm advising Networx, comparing the bids.

Documents involving the bids were released Wednesday after council chairman Tom Marshall threatened to subpoena them. The Commercial Appeal, citing Tennessee's open records law, also had filed a request for the documents with MLGW.

After reviewing the bids and the analysis of them by The McLean Group, Marshall said the selection of CII made sense.

"Now that I've seen all this, I have no reason to doubt McLean's assessment," he said.

Efforts to contact AFS officials late Wednesday were unsuccessful.

But Paul Allen, founder and CEO of Ohio-based BTi, said he can't understand why his firm's bid lost out to the much lower price offered by CII.

"Not only is (BTi's bid) better by $9 million, it's the right bid for Memphis," Allen said.

The BTi bid would have benefited utility ratepayers by retaining MLGW as a partner, he added.

Allen also dismissed the financing issue. He said he had pledges from banks for the funds needed in the purchase.

"I don't have 20 million dollars lying around. Obviously every deal we do involves financing," Allen said.

The CII proposal calls for a stock purchase, with $750,000 held in escrow for 18 months. The American Fiber offer involves $10.5 million in cash and $3 million in that company's stock. BTi is offering $16.5 million at closing plus a $3.5 million investment. Only the CII proposal is fully financed, according to the McLean analysis.

Comparing the bids.

An analysis by The McLean Group, an investment banking firm hired to find a buyer for Memphis Networx, summarizes the bids from the three finalists as follows:

Communications Infrastructure Investments: $11.5 million, fully financed with the ability to close in 30-45 days. $750,000 placed in escrow for 18 months. Offer to be withdrawn if not accepted in a specified period.

American Fiber Systems: $13.5 million ($10.5 million cash, $3 million in AFS common stock). $500,000 in escrow for 12 months. Firm would need to raise funds to complete the transaction.

BTi Corporate: $16.5 million for debt-free company at closing. $3.5 million in working capital but not payable to shareholders. Seven-year noncompete clause from current owners required. BTi would need to raise funds to complete the acquisition.

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Cash Readiness Tips Networx Deal June 28, 2007

Cash Readiness Tips Networx Deal
June 28, 2007