3. Proposed Transaction
As a result of this transaction, Castle Partners will indirectly acquire a controlling amount of stock in Securus Holdings, the ultimate parent company of Securus and T-NETIX. More specifically, Connect Acquisition Corp., which is 94 percent owned by Castle Partners, will acquire 100 percent of the stock of Securus Holdings through a merger of Securus Holdings and a direct subsidiary of Connect Acquisition Corp. This subsidiary of Connect Acquisition Corp. will be merged into Securus Holdings and will no longer exist after the merger. After this merger, Castle Partners will indirectly control Securus and T-NETIX.
Applicants represent that the proposed transfer of control will be transparent to customers. Applicants state that after the merger, Securus and T-NETIX will continue to operate as separate entities, with no changes in rates, terms, or conditions of service resulting from the transaction. Securus and T-NETIX will retain their current day-to-day management, with no definitive plans for any changes.
According to the application, as part of the merger, Castle Partners will extend a long-term credit arrangement to Securus and T-NETIX in order to both fund the proposed merger and to provide Securus and T-NETIX and their affiliates with refinancing of their current indebtedness and access to significant sources of capital to meet their operating needs. Applicants state that this transaction will benefit both Securus and T-NETIX by ensuring that each company has the financial resources necessary to continue serving its customers and to potentially expand or enhance its services. Castle Partners views this acquisition as a promising investment opportunity for the benefit of its investors.
Discussion
The Applicants request Commission authorization pursuant to § 854 for the transfer of indirect control of Securus and T-NETIX to Castle Partners. Section 854 states, in relevant part, as follows:
No person or corporation...shall merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state without first securing authorization to do so from the commission...Any merger, acquisition, or control without that prior authorization shall be void and of no effect.
The purpose of § 854 is to enable the Commission to review a proposed transaction, before it takes place, in order to take such action as the public interest may require. The Commission has broad discretion under § 854 to approve or reject a proposed transaction. If necessary and appropriate, the Commission may attach conditions to a transaction in order to protect and promote the public interest.4
When a company that does not possess a CPCN desires to acquire control of a company or companies that do possess a CPCN, the Commission will apply the same requirements to the acquiring company as would be applied to an initial applicant seeking the type of CPCN held by the company being acquired. An applicant who desires to operate as a provider of resold interexchange services must demonstrate that it has a minimum of $25,000 in cash or cash equivalent for operations of the company, plus the costs of deposits to be paid to other carriers. In addition, the applicant is required to make a reasonable showing of technical expertise in telecommunications or a related business.
In confidential exhibits to the application, Applicants have provided financial documents which demonstrate that Castle Partners more than meets the Commission's financial requirements for the issuance of a CPCN authorizing the provision of resold interexchange services. Since, after the merger, the day-to-day management of Securus and T-NETIX will remain the same, Applicants have met the Commission's requirement for a showing of technical expertise in telecommunications.
This transaction will provide Securus and T-NETIX with increased access to capital and with the business expertise of Castle Partners, which will allow Securus and T-NETIX to become stronger competitors in California's telecommunications marketplace. The transaction will be transparent to customers, and will not harm the public. In addition, the application is unopposed.
We therefore find that the transaction is in the public interest and grant the application pursuant to § 854.
4 D.01-06-007, 2001 Cal. PUC LEXIS 390, *24.
