The board of the town-owned MI-Connection cable
system plans to ask Davidson and Mooresville for an additional $12.5 million. The towns had said previously they would need more money because the price tag to buy the system last December was $11 million more than expected. But the extra capital also includes money for new, unanticipated upgrades, because the system’s underground cable network needs more work than previously thought, MI-Connection officials said Thursday.
Altogether, the system needs another $16 million – $5 million for the additional upgrades and $11 million to cover the higher-than-expected cost, board chair Evan Webster said Thursday.
The towns are expected to borrow $12.5 million of the total. The remaining $3.5 million would be paid for through cash flow from operations, said Mr. Webster, who is also a Davidson commissioner.
MI-Connection currently has about 15,000 customers in Mooresville, Davidson, Cornelius and parts of south Iredell and north Mecklenburg. They include about 5,700 who subscribe to digital TV. And the system also sells internet connections to about 9,000 customers.
BACKGROUND
Davidson and Mooresville set up the MI-Connection consortium last December to jointly buy the system. The towns had the right of first refusal to buy the network if it went up for sale. It became available because of the 2002 bankruptcy of former operator Adelphia Communications.
Time Warner, along with fellow cable giant Comcast, bought most of Adelphia’s nationwide assets out of bankruptcy. Time Warner operated the Lake Norman area system temporarily while the towns decided whether to buy it. Time Warner also fought the towns in court to try and keep the system.
The towns originally expected to pay about $40 million. But the price tag rose to $51 million when the system turned out to have more subscribers than the towns were initially told by Time Warner Cable. The higher cost meant the towns had to dip into borrowed money they had intended for upgrades.
The towns are not managing the system themselves. MI-Connection has a five-year contract, worth up to $11 million, with BVU Focus, of Bristol, Va., which is running the system. BVU Focus is a subsidiary of Bristol Virginia Utilities, which operates a cable, telephone and internet system in Bristol, Va.
ADDITIONAL BORROWING?
The towns originally arranged $80 million in debt to pay for the system as well as badly needed upgrades. Mooresville was the borrower, though Davidson is obligated for half under the multi-town contract that governs the cable consortium.
It’s not yet clear how the towns will raise the new money, though it would not come from taxpayer-fueled general funds.
Mr. Webster said the towns are likely to take out a bank loan, which like previous borrowing would be paid back over time with cable system revenues. It’s also still to be decided whether one or both towns will borrow the money. Officials from the two towns will negotiate that matter, he said.
Mr. Webster said he thinks the towns could decide to split the borrowing this time. “Davidson would be willing to borrow half the money,” he said.
If the towns do decide to seek a bank loan, they would not need voter approval, though the borrowing plan would have to be approved by the Local Government Commission in Raleigh. The commission previously approved the towns’ $80 million debt last fall.
The request will be presented to the Davidson and Mooresville town boards this spring, public hearings would follow, and the boards would vote in early summer, Mr. Webster said. The Local Government Commission then would have to OK the loan.
UPGRADE BEGINS THIS MONTH
Meanwhile, MI-Connection general manager James “Junior” Miller said this week that the system has hired Sirah Contracting Inc. of Georgia to help with the planned major system upgrade.
Upgrade work is scheduled to start Monday, April 21. The work should be completed a year from now, Mr. Miller said.
Mr. Miller said he the need for additional money arose following physical inspections of the system since December. “Basically, there’s a lot more underground plant (cable) than we knew,” he said.
The upgrade includes installing higher-capacity fiber-optic cable between “nodes” at each neighborhood, increasing the number of nodes from 32 to 194, and adding new equipment. That would reduce the number of customers sharing each node to about 200 to 250, from the current 600 to 800 per node.
The upgrades will improve existing services and give the company the ability to offer new services, such as 50 additional digital channels, on-demand programming, and local telephone service, said Sandra Munsey, MI-Connection’s marketing coordinator.
“That’s going to get us into being able to compete with a ‘triple-play’ bundle,” Ms. Munsey said. Bristol Virginia Utilities already offers bundled services in its system, where it competes against other cable and telephone providers. The upgrades would make it easier for MI-Connection to compete with existing local phone companies, satellite providers, and, if they chose to do so, with another cable company that decided to come into the area and build its own network.
This is a lot of money for a $20 – 25 MM revenue company, which was the original revenue budget around years 2013 to 2015. I am sure that is much higher since they had more customers.
There was an additional $11 million in the initial purchase price so the actual new capital ask is s$ 5 million. Since the towns initial due diligence never revealed the additional customers, we are now asking for a total of $16 million.
I have structured a lot of deals, however, I have never seen a deal done where there was not real inspection of the company’s actual assets and through due diligence of the income statement and balance sheet. Buying a company based on a consultant’s report and not a thorough review of the actual assets really exposes a level of inexperience on the part officials.
The officials are always blaming Time Warner that they did not play fairly and that they intentionally sabotage the process. If officials had actually performed real hands-on due diligence much of these issues would have been reduced or eliminated. So we paid fair-market value for a sub-par system. Officials blame Time Warner, however, if they would have remembered and heeded the famous Latin term “Caveat Emptor,” which means let the buyer beware, much of this embarrassment and pain could have been averted. Business has always been about competition and finding a weakness that you can exploit against another competitor. The deal business is not about fair play or goodwill.
As it stands today, we will have a very expensive system that was purchased out of haste and potentially overblown egos. In the meantime, AT&T is laying wire in the McConnell neighborhood and it is rumored that Time Warner may overbuild the system. This will bring an intense amount of price competition to M-I Connection. With a highly leveraged balance sheet, AT&T and Time Warner have the wherewithal to make M-I feel pain.
Maybe they should consider selling to AT&T or Time Warner to cut their losses.
Deals are difficult at best. Officials forced a transaction, which is what happened here
This is an unwritten rule in the M&A business of NOT engaging in HOSTILE TAKEOVERS for the very reason officials are complaining about Time Warner today.
I am still concerned that the taxpayers of Davidson could be stuck with a very high tax bill if this venture fails. Some people on fixed incomes may be forced to move out of town. Government should protect its citizens and not take over private enterprises. Hopefully, MI-CONNECTION will be a profitable venture and sell the business sometime in the future.