8. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Myra J. Prestidge is the assigned ALJ in this proceeding.
1. ELI is a Delaware limited liability company and is owned by Integra Holdings, which in turn is owned by Integra.
2. ELI holds a CPCN authorizing the provision of resold and facilities-based local exchange services, and resold and limited-facilities based intraLATA and interLATA telecommunications services (high speed private lines services), low speed private line services and switched toll services in California.
3. Eschelon is a Delaware corporation and is a direct subsidiary of Integra Holdings, which is in turn owned by Integra.
4. Eschelon holds a CPCN authorizing the provision of limited facilities-based and resold local exchange and resold interexchange services in California.
5. Advanced Telecom, Inc. is a Delaware corporation and is a direct subsidiary of Eschelon and an indirect subsidiary of Integra Holdings, which is in turn owned by Integra.
6. Advanced Telecom, Inc. holds a CPCN authorizing the provision of facilities-based interexchange services in California.
7. ELI, Eschelon, and Advanced Telecom are all subsidiaries of Integra Holdings.
8. Integra Holdings is owned by Integra, which is the ultimate parent company of ELI, Eschelon, and Advanced Telecom.
9. WP IX and WP X are limited partnerships with their principal offices located in New York, New York, and are affiliates of, and are controlled by WP, a global private equity firm.
10. WP IX and WP X do not transact business in California other than holding ownership interests in other businesses.
11. On September 18, 2007, Applicants filed this application seeking Commission authorization to transfer the indirect control of ELI, Eschelon, and Advanced Telecom Inc., to WP IX or WP X, through WP IX's or WP X's acquisition of between 35 and 70% of the issued and outstanding shares of the capital stock of Integra.
12. In a subsequent filing, Applicants advised the Commission that WP X, rather than WP IX, would be participating in this transaction.
13. On January 4, 2008, Applicants notified the Commission that WP X and Integra had consummated this transaction on December 5, 2007, without prior Commission approval.
14. 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.
15. Applicants state that 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%.
16. 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.
17. According to Applicants, after giving effect to the shares purchased in the transaction and the subsequent purchase of warrants, WP's equity ownership interest in Integra increased to 48.6% when calculated on a fully diluted basis.
18. According to Applicants, if the options and warrants for common stock held by third parties were to be excluded from consideration in calculating WP X's ownership interest in Integra following the merger and purchase of warrants, WP X would then hold a 51.2% ownership interest in Integra.
19. Absent other circumstances, majority ownership of Integra shares by Applicants would be presumed to be a transfer of control since only outstanding shares should be considered as affecting control.
20. By the terms of the Shareholder's Agreement, Applicants cannot amend the Shareholder's Agreement or take certain key actions (such as the sale, lease, or transfer of assets; mergers, consolidations or reorganizations; recapitalizing its equity securities; payment of dividends'; or replacement of senior executives such as the chief executive officer or chief operations officer) without a 66 2/3 % vote. Therefore, no showing is made that Applicants have the means to control Integra.
21. On January 4, 2008, Applicants filed a motion to dismiss, on the grounds that this transaction does not result in a transfer of control which requires Commission approval under Section 854.
22. Our previous decisions do not clearly state whether in determining whether a particular transaction requires our prior approval under Section 854, the ownership interest of the acquiring entity should be calculated on a fully diluted basis or otherwise.
23. Applicants state that there will be no change in the name, day-to-day management or operations of ELI, Eschelon, and Advanced Telecom, Inc. as a result of the indirect transfer of control to WP X.
24. The customers of ELI, Eschelon, and Advanced Telecom, Inc. will continue to receive service under the same rates, terms, and conditions after the transaction.
25. WP X has access to sufficient financial resources to meet the Commission's requirements to provide facilities-based, limited facilities-based, and resold local exchange and interexchange services.
26. This transaction will give Integra, the ultimate parent company of ELI, Eschelon, and Advanced Telecom, Inc. access to increased capital from WP X, in order to enhance the operations of ELI, Eschelon, and Advanced Telecom, Inc.
27. WP X does not hold a CPCN authorizing the provision of telecommunications services in this state.
28. Since the day-to-day management of ELI, Eschelon, and Advanced Telecom, Inc. will remain the same, WP X has met the requirements for technical and managerial expertise to provide telecommunications services, for the purposes of this transaction only.
29. WP X has the financial qualifications necessary to exercise control of ELI, Eschelon, and Advanced Telecom, Inc.
30. This transaction represents a very close call as to whether a transfer of control for which Section 854 requires our advance authorization has occurred.
31. This transaction does not result in a change in the ownership of Integra and its subsidiaries ELI, Eschelon, and Advanced Telecom, Inc.
32. There is no evidence that Applicants have previously failed to comply with applicable statutes and regulations.
33. Applicants took steps to report their consummation of the transaction without prior Commission approval approximately one month after the transaction was finalized.
34. Notice of this application appeared on the Commission's Daily Calendar on September 26, 2007. There were no protests to this application.
35. No hearings are necessary.
1. This is a ratesetting proceeding.
2. Section 854(a) requires Commission authorization to transfer control of a public utility.
3. The Commission will apply the same requirements to a request for approval of an agreement to acquire control of a telecommunications carrier as it does to an applicant for authority to provide such services.
4. Any transfer of control of a public utility without prior Commission authorization is void under Section 854(a).
5. Section 854(a) does not authorize the Commission to retroactively approve transfers of control of public utilities.
6. This application should be dismissed because the WP X acquisition of stock did not result in a transfer of control of ELI, Eschelon, and Advanced Telecommunications, Inc.
7. Applicants' consummation of the transaction did not require prior Commission approval under Section 854(a).
IT IS ORDERED that:
1. The Motion to Dismiss Application (A.) 07-09-012 requesting approval under Pub. Util. Code § 854(a) to transfer the indirect control of Electric Lightwave, LLC (ELI), Eschelon Telecom, Inc. (Eschelon, and Advanced Telecom, Inc. (Advanced Telecom) to Warburg Pincus Private Equity X, LP (WP X) is granted.
2. Applicants shall comply with Section 854 in the future to the extent that it applies, and are subject to fines and other regulatory sanctions if violations occur.
3. Application 07-09-012 is closed.
This order is effective today.
Dated December 4, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
