BTi News
- Networx Bid Rejections Stump Suitors
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// June 24, 2007
Two companies vying to buy Memphis Networx from the city-owned Memphis Light, Gas and Water Division contend that -- compared to the $11.5 million bid accepted by MLGW -- their proposals would put millions more back into the pockets of ratepayers.
One firm, American Fiber Systems, has launched an offensive, sending a letter to Mayor Willie Herenton, the City Council and MLGW's board revealing some previously confidential details of the New York company's $13.5 million bid package.
Representatives for another firm, the Ohio-based BTi Corporate, have made no public statements about their proposal. But according to sources familiar with the bid, it's worth $20 million, and company officials were perplexed by the rejection of their proposal.
The two firms were among three finalists in the secret bidding process undertaken by the joint owners of Networx -- MLGW and its private partners -- to sell off the disastrous fiber optics firm launched by the city in 1999.
An agreement was reached in principle earlier this month to sell Networx to the third finalist, Communications Infrastructure Investments (CII), a Colorado holding company, for $11.5 million.
"It absolutely was the best bid that we received," said John McCullough, Networx board chairman and MLGW's vice president and chief financial officer.
McCullough, however, would not answer specific questions about the other proposals.
"It's like any bidding process. You'll see a number of bids that are good," he said.
Citing Tennessee's open records law, The Commercial Appeal filed a request last week with MLGW for copies of the bids to buy Networx. Utility officials have refused so far to make the bids public.
According to details provided by MLGW about the proposed sale to CII, just about $2 million would be left over to split between MLGW and its partners after debts are paid.
The deal would cement MLGW's loss of all but about $994,000 of the $28.6 million of ratepayer funds sunk into the telecom venture.
Networx serves business and institutional customers with an array of high-speed data services through a fiber-optic network owned by the company. But despite early projections that it could be a major source of revenue for MLGW, Networx has never returned a profit to its investors.
MLGW's board was scheduled to approve the sale Thursday but postponed the vote until July 5 after anxious City Council members requested a delay. The council doesn't have the authority to approve or reject the deal, but members wanted to study it.
The loss that's anticipated, coupled with claims of better bids that were discarded, prompted City Council Chairman Tom Marshall on Thursday to make a request himself: Turn over the bids to the council.
MLGW and Networx officials initially balked, saying public disclosure of the bids would hurt the sales position of Networx in dealing with the selected buyer.
"There are significant cost consequences of sharing this information," Rick Masson, MLGW's board chairman and acting president and CEO, said Thursday at a utility board meeting.
But Marshall says he struck a deal Friday with MLGW board member Nick Clark, who also serves on the board of Networx, to provide copies of the bids to council members on Tuesday. In addition, the council would receive a document that shows how the bids were evaluated.
The council, in turn, would then make the bids public.
In an interview, Marshall acknowledged the financial risk to the city in making the bids public, but said MLGW risks more by not revealing the proposals.
"And that is the risk of further eroding public trust in a division of city government that is sorely needed right now," he said.
In an e-mail to The Commercial Appeal, Clark said later he has no problem complying with Marshall's request -- if the council takes responsibility for what it wants.
"We have the challenge of the business process of how to recover the maximum amount possible and the dilemma of the public frustration over the loss," Clark said.
"My preference would be for MLGW to transfer its ownership interest in Networx to the City for what cash it would get out of the transaction and let the City Council manage this process."
He added that MLGW's private partner in Networx, Memphis Broadband, has asked for an indemnification from MLGW in the event that the disclosure of the bids leads to the final sale price from CII or other bidders being lowered.
In its open letter to the city, American Fiber Systems said it offered a gross bid of $13.5 million to purchase Networx: $10.5 million in cash and $3 million in AFS stock.
Company president and CEO David Rusin wrote that the stock was essentially a bonus that would allow Networx's stakeholders to share in "any upside" that would result from AFS's acquisition of the firm.
"I believe our bid provided a better overall return to stakeholders of Memphis Networx inclusive of private equity holders, minority equity holders, MLGW ratepayers and the City of Memphis taxpayers," Rusin wrote.
Meanwhile, BTi Corporate officials declined comment on their bid.
Marshall said he believes "full disclosure" of the bids is needed before MLGW agrees to sell Networx.
"Ratepayers deserve to know the truth about what happened to their investment in this failed venture and understand its residual value," he said.
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