2. Parties to the Transaction
WP IX and WP X are limited partnerships with principal offices located at 466 Lexington Avenue, New York, NY 10017. WP IX and WP X transact no business in California other than ownership of investment interests in other businesses. Neither WP IX nor WP X holds a certificate of public convenience and necessity (CPCN) authorizing the provision of telecommunications services in California.
Both WP IX and WP X are affiliates of, and are controlled by, Warburg Pincus & Co. (WP), a global private equity firm. According to the application, WP has over $20 billion of assets under management and has substantial experience in the information and communications technology sectors.
ELI is a limited liability company organized under the laws of Delaware, with its principal place of business located at 2101 NE Lloyd Blvd., Suite 500, Portland OR 97232. ELI's sole owner is Integra Holdings, Inc.2 (Integra Holdings), which is in turn a wholly-owned subsidiary of Integra Telecom, Inc. (Integra). ELI holds a certificate of public convenience authorizing the company to provide resold and limited facilities-based intraLATA and interLATA telecommunications services (high-speed private lines services),3 low-speed private line services and switched toll services,4 facilities-based, local exchange services,5 and resold local exchange services6 in California.
Eschelon, founded in 1996, is a Delaware corporation with its principal place of business located at 730 Second Avenue South, Suite 900, Minneapolis, MN 55402, and is also owned by Integra Holdings and ultimately, Integra.7 Eschelon holds a CPCN authorizing the provision of limited facilities-based and resold local exchange and resold interexchange services in California.
Advanced Telecom Inc. (dba Eschelon Telecom Inc.) is a Delaware company and a subsidiary of Eschelon. Advanced Telecom, Inc. holds a CPCN authorizing the provision of facilities-based interexchange services in California.
2.1. Factual Background and
Procedural History
According to the application, on August 13, 2007, Integra entered into an agreement and plan of merger, which provided that Integra Recap., Co., an Oregon corporation, would be merged into Integra Telecom, with Integra Telecom to be the surviving corporation after the merger. The application states that since Integra's Board of Directors (Board) believed that it would be in Integra's best interests to recapitalize its capital stock through this transaction, either WP IX or WP X would invest at least $245 million in order to obtain an equity stake in Integra as a part of the transaction. Certain current stockholders in Integra would then relinquish their ownership interests in the company by selling their holdings to WP IX or WP X. The application states that as a result of this transaction, either WP IX or WP X would acquire an equity interest in Integra of between 35% and 70%. Applicants have proceeded under the assumption, consistent with Commission precedent, that advance Commission approval of the transaction would only be required if the merger were to result in a transfer of 50% or greater interest in Integra.
In subsequent filings, Applicants reported that WP X, rather than WP IX, would be the entity involved in the transaction and that on December 5, 2007, the parties consummated the transaction and closed the merger. According to Applicants, as a result of this merger, WP X acquired a 45.5% equity interest in Integra, when this interest is calculated on a fully diluted basis.8 However, if the options and warrants for common stock held by third parties were to be excluded from consideration in determining WP X's ownership interest, WP X's ownership interest in Integra immediately after the merger would have been 49.5%.
Applicants also reported that immediately after the closing of the transaction, WP X separately purchased warrants from certain other equity holders, which had wanted to participate in the transaction but had missed the deadline, and WP immediately exercised these options. After giving effect to the shares purchased in the transaction and the subsequent purchase of warrants, WP X's equity ownership interest in Integra increased to 48.6% when calculated on a fully diluted basis. Only when the options and warrants for common stock held by third parties are excluded from consideration in calculating WP X's ownership interest in Integra following the merger and purchase of warrants would WP X be found to hold a 51.2% ownership interest in Integra, the ultimate parent company of three California carriers, ELI, Eschelon, and Advanced Telecom, Inc.
On January 4, 2008, Applicants filed a Motion to Dismiss this application, which advised the Commission that the merger was consummated on December 5, 2007, but argued that the above transaction is not a transfer of control for which Commission approval is required under Section 854. In the alternative, the Motion to Dismiss asked the Commission to authorize any transfer of control resulting from this transaction.
2 According to the application, Integra Holdings' various operating subsidiaries are authorized to provide telecommunications services in a number of states and are also authorized by the Federal Communications Commission to provide interstate and international telecommunications.
3 See D.94-03-007.
4 See D.95-09-115.
5 See D.95-12-057.
6 See D.96-02-072.
7 According to the application, in Advice Letter Nos. 2 (Eschelon) and 59 (Advanced Telecom), filed on April 16, 2007, Eschelon advised the Commission of a transaction in which Integra Holdings acquired all of the outstanding equity interests of Eschelon. As a result of this transaction, Eschelon became a wholly owned direct subsidiary of Integra Holdings, and Advanced Telecom became an indirect subsidiary of Integra Holdings.
8 A `fully diluted" basis means that in calculating the percentage of ownership interest, equity interests held in the form of options and warrants, most of which may be exercised for common stock at a nominal cost, are included.
