The Form and Purpose of the Merger
The joint application states that the vehicle for the proposed merger will be Nodes Merger Corporation (Nodes), a Delaware corporation that has been created by MDP, as well as other investors who will hold minority interests in NextG Parent. Nodes and NextG Parent have entered into a merger agreement dated May 15, 2009 that has been filed under seal, and pursuant to which (i) Nodes will merge into NextG Parent, with NextG Parent as the surviving corporation, and (ii) Nodes will contribute to the new venture an amount of money specified in the merger agreement. (Id. at 7.) As noted above, after the proposed merger, the six MDP investment funds identified above will collectively own approximately 61% of the outstanding capital stock of NextG Parent, "with the remaining 39% divided up among the existing [NextG] Parent stock holders and new investors." (Id.)4
The joint application emphasizes that the proposed transaction will not result in any change in the rates that NextG charges or in the services it provides, but will instead give NextG and its affiliates access to much-needed expansion capital:
After the Transaction, NextG will provide the same products and services it does at present, at the same rates and on the same terms and conditions, pursuant to the same telecommunications authorizations, and without changes to any billing protocol. The Transaction should not result in any loss or impairment of service to NextG's customers and customers will use the same contact information for inquiries or other communications with NextG. Indeed, despite the change in ownership of [NextG] Parent, NextG does not currently anticipate any change in its management or operational personnel as a result of the Transaction, thus maintaining the managerial and technical expertise of NextG and [NextG] Parent. Therefore, the indirect transfer of control of NextG should be seamless and transparent to consumers in the State of California.[5] NextG submits that the Transactions will serve the public interest.
Under new ownership, however, NextG, through [NextG] Parent, will gain critically important access to the additional resources of the new investors which should permit NextG to continue to grow and expand its business. This indirect transfer of control, therefore, should give NextG the ability to become a stronger competitor in California and nationwide. MDP entered into the transaction because it views [NextG] Parent (and its subsidiaries) as a prudent investment with significant growth potential. Because NextG will not change its services or management, the only change will be that the ultimate ownership of [NextG] Parent will transfer and control will now reside with MDP. (Id. at 7-8; footnotes omitted.)
4 In addition to obtaining new capital, one of the reasons for the proposed transfer appears to be simplification of the capital structure of NextG Parent, for which an eventual public offering of stock is contemplated.
As to the current capital structure, the joint application explains that NextG Parent was originally formed in 2001 by John Georges and David Cutrer. At the time of formation, these two men owned substantially all of NextG Parent's stock. However, later in 2001, NextG Parent issued its Series A Preferred Stock, which was purchased mainly by two venture capital firms. After issuance of this stock, the venture capital firms owned approximately 40% of NextG Parent's capital stock, and Messrs. Georges and Cutrer owned approximately 23% each (on a fully diluted, as-if converted to common stock basis). (Joint Application, pp. 5-6.)
In 2004, NextG Parent issued its Series B Preferred Stock. This stock was purchased primarily by an investment partnership. After completion of the Series B transaction, Messrs. Georges and Cutrer each owned approximately 16% of NextG Parent's capital stock, the investment partnership owned about 28%, and the venture capital firms that had bought most of the Series A Preferred Stock owned about 28%. (Id. at 6.)
In late 2007 and early 2008, NextG Parent issued a third series of preferred stock, Series C, which constituted about 10% of NextG Parent's available stock. The joint application states that the Series C stock was purchased by several investors, none of whom holds more than 5% of the total outstanding shares. As a result of the Series C transaction, Messrs. Georges and Cutrer now hold approximately 13.27% each of NextG Parent's capital stock, the investment partnership holds approximately 27%, and one of the venture capital firms holds approximately 15%. The remaining 30% of NextG Parent's stock "is now held by several other venture firms and individuals -- none of which owns more than 10%." (Id. at 6-7.)
The joint application also notes that NextG did not seek Commission approval for issuance of the Series B and C Preferred Stock because those issuances did not result in a transfer of control, and that issuance of the Series A Preferred Stock occurred before NextG filed its original application for a CPCN from this Commission. (Id. at 6, fn. 3.)
5 Despite this alleged seamlessness and transparency, the joint application states that NextG will provide notice of the proposed transaction to all its customers in California. (Id., at 8, n. 5.)
