III.1. Public Hearing: Transfer of Cable System from Comcast to Midwest Cable
December 16, 2014 Council Report 2014-141
Public Hearing on Transfer of Control of
Cable Television System
Proposed Action
Staff recommends that the Council approve the following motion: Approve Resolution 2014-082
approving the transfer of control of the cable television franchise from Comcast to Midwest Cable.
Overview
The purpose of this public hearing will be to consider the application for the transfer of the cable
system from Comcast of Minnesota, Inc., the existing cable television franchisee, to Midwest Cable,
Inc., a newly formed entity that will hold the cable system. The hearing will focus on the application
submitted and the qualifications of Midwest Cable, Inc. and whether the proposed transfer may have
an adverse impact on cable subscribers. The proposed transfer of control requires approval under our
franchise and Minnesota Law.
The Southwest Suburban Cable Commission (SWSCC) met on December 3, 2014. At that meeting, the
Commission made a recommendation to its member cities that they approve the proposed transfer.
Each member city has its own franchise with the cable operator so each city must separately approve
the transfer.
Primary Issues to Consider
Does Midwest Cable have the legal, technical and financial qualifications necessary to operate the
cable franchise?
Based on the information provided to the SWSCC and limited strictly to the financial information
analyzed and described in the Transfer Report, the Commission does not believe that the transfer
can reasonably be denied based on the information at hand.
Alternatives
1.Approve Resolution 2014-082. This will eventually result in the transfer of control of the cable
franchise from Comcast to Midwest Cable.
2.Do not approve Resolution 2014-082. This will likely result in the City becoming involved in a
lawsuit.
3.Continue the item for more information.
Supporting Information
Resolution 2014-082
Summary Memorandum from Brian Grogan, staff attorney to the SWSCC
Transfer Report
Copy of Transfer PowerPoint presentation
___________________________
James Genellie
Assistant City Manager
RESOLUTION NO. 2014-082
APPROVING THE TRANSFER OF THE CABLE FRANCHISE
AND CHANGE OF CONTROL OF THE GRANTEE
WHEREAS,
Comcast of Arkansas/Florida/Louisiana/Minnesota/Mississippi/Tennessee,
Inc. (“Grantee”), currently holds a cable television franchise (“Franchise”) granted by the City of
Hopkins, Minnesota (“City”); and
WHEREAS,
Grantee owns, operates and maintains a cable television system in the City
(“System”) pursuant to the terms of the Franchise; and
WHEREAS,
on February 12, 2014, Comcast Corporation ("Comcast") and Time Warner
Cable Inc. ("TWC") entered into an Agreement and Plan of Merger; and
WHEREAS,
on April 25, 2014, Comcast and Charter Communications, Inc. ("Charter")
entered into the Comcast/Charter Transactions Agreement (the "Agreement"), pursuant to
which the Grantee, through a restructuring under Comcast's ownership, will become Comcast of
Minnesota, LLC ("New Grantee") and immediately thereafter will become a wholly-owned
subsidiary of Midwest Cable, Inc. ("Midwest Cable") (the "Transaction"); and
WHEREAS,
on or about June 17, 2014 the City received from Grantee, FCC Form 394 -
Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable
Television Franchise (“Application”); and
WHEREAS,
Federal law and the terms of the Franchise require that the City take action
to consider the Application within one hundred twenty (120) days of the date of receipt, or on or
before October 15, 2014; and
WHEREAS,
on or about August 22, 2014 Comcast and Midwest Cable agreed to extend
the Application review period for sixty (60) days until December 15, 2014 to allow the City time
to review the additional information concerning the qualifications of Midwest Cable provided to
the City on September 30, 2014; and
WHEREAS,
on or about September 30, 2014 Comcast and Midwest Cable agreed to a
further extension of the Application review period for thirty (30) days until January 15, 2015 to
allow the City to review certain service agreements related to the Transaction as well as certain
SEC financial filings to be made available for review on October 31, 2014; and
WHEREAS,
Section 2.7 of the Franchise requires the City’s advance written consent
prior to the Grantee’s transfer of the Franchise; and
WHEREAS,
as a result of the proposed Transaction Grantee has requested consent
from the City to the proposed transfer of the Franchise; and
WHEREAS,
the City has reviewed the proposed Transaction, and based on information
provided by Grantee and Midwest Cable and on the information received by the City from the
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Southwest Suburbs Cable Commission (“Commission”), the City has elected to approve the
proposed Transaction subject to certain conditions as set forth herein.
NOW, THEREFORE
, the City of Hopkins, Minnesota hereby resolves as follows:
1.
All of the above recitals are hereby incorporated by reference as if fully set forth
herein.
2.
The Franchise is in full force and effect and Grantee is the lawful holder of the
Franchise.
3.
New Grantee will be the lawful holder of the Franchise after completion of the
Transaction.
4.
The City hereby consents and approves of the proposed Transaction subject to
the below conditions.
a.
New Grantee agreeing to assume any and all liabilities, known and
unknown, under the Franchise.
b.
Within twenty (20) days of the date of adoption of this Resolution, New
Grantee shall execute and file with the City the Acceptance and Agreement
attached hereto to verify New Grantee’s compliance with the terms and
conditions of this Resolution; and
c.
Within thirty (30) days following close of the Transaction, Midwest Cable
(also to be known as GreatLand Connections Inc.) shall execute and provide the
City with the Corporate Parent Guaranty attached hereto and incorporated by
reference.
d.
New Grantee shall provide both SD and HD (simulcast) capacity for the
City’s government access PEG channel - identical to what the Grantee currently
provides to the City of Edina, Minnesota under the Franchise.
e.
New Grantee shall maintain and provide (as Grantee currently provides),
free of charge to the City, Commission and the Commission’s member cities, the
existing PEG playback transmission connectivity and Comcast fiber and coax
cable in the following manner:
i. All fiber coming to and from the existing Comcast Head end
building - 10210 Crosstown Circle necessary for Commission PEG
transmissions.
ii. New Grantee shall provide, maintain and replace any existing
routers, switching equipment and related facilities at the headend that
may be required to maintain the same PEG access functionality as
Grantee currently provides and as otherwise required by the Franchise.
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iii. The City, Commission and Commission’s member cities shall
have the right to continue to use maintain the fiber & splice points at
10210 Crosstown Circle.
iv. In the event headend is relocated from 10210 Crosstown Circle,
all costs and expenses required to maintain the PEG playback
transmission connectivity and Comcast fiber and coax cable shall be
provided by New Grantee free of charge to the City, Commission and the
Commission’s member cities.
v. New Grantee shall provide, maintain and replace the existing
termination equipment (Modulators) to facilitate the PEG programming
transmission to each of the Commission’s member cities in following
amounts - Edina (6), Richfield (1), Hopkins (1), and Minnetonka (1).
f.
New Grantee will participate in quarterly meetings with members of the
Commission or the Commission’s designees for the first two (2) years following
the close of the Transaction to verify that subscriber issues and concerns are
being addressed by New Grantee or any other entity that may have interaction
with subscribers within the City. If issues are not being addressed, New Grantee
agrees to meet with Commission and City staff, as directed, to explain steps
being undertaken to address subscriber concerns and New Grantee will provide
regular and timely updates to the Commission to provide verification of corrective
actions being undertaken to address unresolved issues.
g.
New Grantee will maintain an “escalated complaint program” to escalate
unresolved cable television complaints from subscribers. One or more
specifically identified employee(s) of New Grantee shall be available to
Commission or City staff via email for reporting issues. These specifically
identified employee(s) of New Grantee will have the ability to escalate service
issues to a senior officer of New Grantee or New Grantee’s parent company
when necessary. New Grantee will follow-up with Commission or City staff by
email or by phone with a summary of the results of the complaint(s).
h.
New Grantee’s compliance with the requirements of paragraphs c, d, e, f,
and g of this Resolution shall be handled under the Franchise. New Grantee
shall be subject to available enforcement procedures and remedies as if these
obligations were set forth in the Franchise.
i.
Comcast shall, within twenty (20) days of the date of adoption of this
Resolution, fully reimburse City for all of City’s reasonable costs and expenses in
connection with the City’s review of the proposed Transaction, including without
limitation, all costs incurred by the City for experts and attorneys retained by City
to assist in the review as well as notice and publication costs (“Reimbursement”).
i.
The Reimbursement shall not be deemed to be “Franchise Fees”
within the meaning of Section 622 of the Cable Act (47 U.S.C. §542), nor
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shall the Reimbursement be deemed to be (i) “payments in kind” or any
involuntary payments chargeable against the Franchise Fees to be paid
to the City by New Grantee pursuant to the Franchise.
ii.
The Reimbursement shall be considered a requirement or charge
incidental to the awarding or enforcing of the Franchise.
5.
In the event the proposed Transaction contemplated by the foregoing resolution
is not completed, for any reason, the City’s consent shall not be effective. If any of the
conditions set forth herein are not met, the City’s consent to the proposed Transaction
shall be null and void and of no effect.
This Resolution shall take effect and continue and remain in effect from and after the
date of its passage, approval, and adoption.
th
Approved by the City of Hopkins, Minnesota this 16 day of December, 2014.
ATTEST: CITY OF HOPKINS, MINNESOTA
By: By:
Its: Its:
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ACCEPTANCE AND AGREEMENT
Comcast of Minnesota, LLC hereby accept this Resolution No.
(“Resolution”) and agree to be bound by the terms and conditions of this Resolution and the
terms and conditions of the Franchise referenced within the Resolution.
Dated this day of , 2014.
COMCAST OF MINNESOTA, LLC
By:
Its:
SWORN TO BEFORE ME this
___ day of ___________, 2014.
NOTARY PUBLIC
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CORPORATE PARENT GUARANTY
THIS AGREEMENT
is made this day of , 201__ (this
“Agreement”), by and among GreatLand Connections Inc. (f/k/a Midwest Cable, Inc.), a
Delaware corporation, (the “Guarantor”) the City of Hopkins, Minnesota (“Franchising
Authority”), and ___________________________________, a ____________________
(“Company”).
WITNESSETH
WHEREAS
, on , 20 the Franchising Authority adopted
Ordinance No. granting a Cable Television Franchise which is now held by
_____________________ (the “Franchise”), pursuant to which the Franchising Authority has
granted the rights to own, operate, and maintain a cable television system (“System”); and
WHEREAS
, pursuant to the Comcast/Charter Transaction Agreement dated April 25,
2014 by and between Charter Communication, Inc., a Delaware corporation, and Comcast
Corporation, a Pennsylvania corporation, (“Agreement”), the Franchise will be transferred to the
Company and the Guarantor will acquire control of the Company as an indirect subsidiary of
Guarantor as a result of Comcast Corporation’s contribution and spin off of certain cable
television systems pursuant to the Agreement (“Change in Control”); and
WHEREAS
, Company and Comcast Corporation have requested the consent to the
Change of Control in accordance with the requirements of Section of the Franchise; and
WHEREAS
, pursuant to Resolution No. , dated
, 20 , Franchising Authority conditioned its consent to the Change of Control on the
issuance by Guarantor of a corporate parent guaranty guaranteeing certain obligations of
Company under the Franchise.
NOW, THEREFORE
, in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, in
consideration of the approval of the Change of Control, Guarantor hereby unconditionally and
irrevocably agrees to provide all the financial resources necessary for the observance,
fulfillment and performance of the obligations of the Company under the Franchise and also to
be legally liable for performance of said obligations in case of default by or revocation or
termination for default of the Franchise.
This Agreement, unless terminated, substituted, or canceled, as provided herein, shall
remain in full force and effect for the duration of the term of the Franchise.
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Upon substitution of another Guarantor reasonably satisfactory to the Franchising
Authority, this Agreement may be terminated, substituted, or canceled upon thirty (30) days
prior written notice from Guarantor to the Franchising Authority and the Company. Such
termination shall not affect liability incurred or accrued under this Agreement prior to the
effective date of such termination or cancellation.
GREATLAND CONNECTIONS INC. (F/K/A
MIDWEST CABLE, INC.)
By:
Its:
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was subscribed and sworn to before me this day of
20___, by , the
of .
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M
EMORANDUM
To: City of Hopkins, MN
From: Brian T. Grogan
Date: December 10, 2014
Re: Transfer of the Hopkins’ Cable Franchise
Background
The City of Hopkins is a member of the Southwest Suburban Cable Commission (“Commission”)
along with the cities of Eden Prairie, Edina, Minnetonka and Richfield. In August 2012 each
member city renewed a cable television franchise to Comcast to provide cable service within its
city limits (“Franchise”). Comcast has proposed to transfer of the Franchise and cable system
to
Midwest Cable, Inc. (“Midwest Cable”). After close of the proposed transfer the name of the
GreatLand Connections, Inc. The Commission retained the services of
operator will change to
Moss & Barnett as legal counsel for review of this proposed transfer. Moss & Barnett has
submitted a detailed report regarding the proposed transfer that is attached (“Transfer
Report”).
The application for the transfer of the Franchise requires written consent from the City after
examination of the legal, technical and financial qualifications of Midwest Cable and following
the conduct of a public hearing. Based on the above mentioned criteria and limited strictly to
the financial information analyzed and described in the Transfer Report, the Commission does
not believe that the transfer can reasonably be denied based on the information at hand.
The 2012 Franchise provides a term of 10 years. Under provisions of the Franchise Comcast is
authorized to construct operate, maintain and reconstruct the cable system within the City limits
and within its rights-of-way. Midwest Cable will be responsible for all existing franchise
agreement provisions if the proposed transfer is approved.
The Transaction
The cable market in the United States is about to undergo a rather dramatic transition. Two of
the largest cable operators, Comcast and Time Warner Cable, are proposing to merge in a
nearly $50 Billion transaction - resulting in Comcast controlling 34 million cable subscribers
throughout the United States. A transaction of this size requires federal approval and there are
concerns that Comcast may become too big and dominant in the cable industry. The FCC and
Justice Department will issue determinations on that transaction in the first quarter of 2015.
150 South Fifth Street | Suite 1200 Minneapolis, MN 55402
P:612-877-5000 F:612-877-5999 W:LawMoss.com
December 10, 2014
Page 2
In an effort to make the transaction more palatable to federal regulators, Comcast voluntarily
offered to divest itself of 4 million cable subscribers so that it would not exceed a total of 30
million cable subscribers nationwide – a threshold historically significant at the FCC. This
voluntary divesture led to Comcast selling 1.5 million cable subscribers to Charter
Communications and creating a new spinoff company for the other 2.5 million cable
subscribers. The entire Twin Cities market was included in the new spinoff company.
Impact on the Twin Cities
What this means is that Comcast will no longer operate cable systems in the state of Minnesota.
The City of Hopkins and the entire Twin Cities market will be served by a brand new cable
operator currently known as Midwest Cable - with the name changing to GreatLand
Connections in 2015 following closing of the overall transaction.
Because Midwest Cable is a brand new entity, there is no ability to review its operating history
in other communities or its historical financial performance. As the Transfer Report outlines in
greater detail, there was limited pro forma financial data provided and therefore assessing the
legal, technical and financial qualifications of Midwest Cable is quite challenging. The Transfer
Report provides in excess of 10 pages of financial information regarding Midwest Cable with the
ultimate conclusion that Midwest Cable will be highly leveraged and will certainly not be in as
strong a financial position as Comcast is today. However, the City has limited options regarding
this transfer in large part because of the sheer magnitude of the transaction as more fully
described in the Transfer Report.
Commission focused its attention on attempting to address customer service issues that may be
impacted by the proposed transaction. Of particular concern to the Commission was the fact
that Charter Communications, which operates cable systems throughout Minnesota today, will
be providing significant operational support to Midwest Cable. In fact, Charter will be providing
everything from telephone answering to billing, programming, email, technical support and a
variety of other operational functions.
Subscriber Impact
Hopkins cable subscribers will be able to maintain telephone numbers that they have with
Comcast but will ultimately be transitioned off of the “comcast.net” email domain. It is likely
that the new email domain will “charter.com.” Subscribers will be able to keep existing cable
equipment in their homes for the foreseeable future as the company indicates that this
equipment will be compatible with the new programming line-up offered by Midwest
Cable/Charter. However, it is possible that further transition of that equipment may occur down
the road.
December 10, 2014
Page 3
The Commission further focused its attention on addressing certain ambiguous provisions in the
new cable television franchise related to the provision of the City’s local government channel on
the cable system. These clarifications will help to ensure continued, uninterrupted transmission
of the City’s government channel as well as all other educational and public access channels
required under the franchise. In addition, the Commission negotiated for Comcast to reimburse
all of the Commission’s (and therefore the City’s) costs related to its review of this proposed
transfer.
In the end the Commission voted unanimously to approve the proposed transfer subject to the
conditions. The conditions are listed in the proposed Resolution.
2637521v1
REPORT
RegardingtheProposedTransferofControloftheCable
FranchiseandCableSystemfromComcasttoMidwestCable
(GreatLandConnectionsInc.)
November26,2014
Submittedby:
BrianT.Grogan,Esq.
YuriB.Berndt,Esq.
150SouthFifthStreet,Suite1200
Minneapolis,MN55402
P612-877-5000
()
F612-877-5999
()
lawmoss.com
www.
INTRODUCTION
ThisreporthasbeenprovidedbyMoss&Barnett,aProfessionalAssociation,forthepurposeof
evaluatingarequestfromComcastofArkansas/Florida/Louisiana/Minnesota/Mississippi/
Tennessee,Inc.(“Grantee”),thecurrentholderoftheCableFranchise(“Franchise”)inthe
membercitiesoftheSouthwestSuburbanCableCommission(“Commission”),toapprovea
proposedtransferofcontrol(“Transfer”)oftheFranchisetoMidwestCable,Inc.(hereinafter
“MidwestCable”or“Midwest”).TheGranteecurrentlyowns,operatesandmaintainsacable
televisionsystem(“System”)ineachoftheCommission’smembercitiespursuanttotheterms
oftheFranchise.TheCommission’smembercitiesareEdina,EdenPrairie,Hopkins,
MinnetonkaandRichfield(hereinaftercollectivelyreferredtoasthe“City”).
OnFebruary12,2014,ComcastCorporation("Comcast")andTimeWarnerCableInc.("TWC")
enteredintoanAgreementandPlanofMergerwherebyComcastwouldacquirethecable
systemsandfranchisesheldbyTWCamongotherassets.OnApril25,2014,Comcastand
CharterCommunications,Inc.("Charter")enteredintotheComcast/CharterTransactions
Agreement(the"Agreement"),pursuanttowhichtheGrantee,througharestructuringunder
Comcast'sownership,willbecomeComcastofMinnesota,LLC("NewGrantee")and
immediatelythereafterwillbecomeawholly-ownedsubsidiaryofMidwestCable(the
"Transaction").
1
Note:Seepages3,4and5ofthisReportfordiagramsoftheTransaction.
WhatishappeningtotheTwinCitiesComcastcablesystems?
Comcast’sproposedacquisitionofTWCwill(ifapproved)resultinthetotalcombinednumberof
cablesubscriberstobecontrolledbyComcasttoexceed30millionnationwide.Inaneffortto
reducethatnumberandmaketheTransactionmoreacceptabletofederalregulators,Comcast
voluntarilyagreedtodivestitselfof3.9millioncablesubscribersnationwide.Partofthis
proposeddivestiturewasaccomplishedwiththesystemswapsbetweenComcastandCharter
thatresultsinCharteracquiringanadditional1.4millioncablesubscribers.Theremaining2.5
cablesubscriberstobedivestedbyComcastwillbecontrolledbyanewpubliclytradedentity,
MidwestCable.InMinnesota,Comcast’sonlycablesubscribersexistintheTwinCitiesmarket
(andsmallportionsofwesternWisconsin).Asaresult,theTwinCitiesmarketwasselected,
alongwithothermarketsinMichigan,Illinois,Indianaandsomesouthernstates,tobeincluded
inthedivestituretransaction.
WhatthismeansisthatComcastwillbeleavingMinnesotaandwillnolongerownthecable
systemsservingtheTwinCitiesortheCity.Rather,theSystemwillbeownedbyMidwest
Cable.BecauseMidwestCableisnewlycreated,itwillrequirethirdpartyassistancetoaddress
manyoperatingissuessuchasprogrammingagreements,customerservice,billing,technical
supportandrelatedissues.CharterwillbeassistingMidwestCablewithmanyoftheseissues
viaa“servicesagreement”thatwillbemorefullyexplainedinthisReport.
1
AlldiagramsarederivedfromMidwestCableFormS-1filedwiththeSecuritiesandExchangeCommissionon
October31,2014.
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2574069v1
WhatwillbethenameofthenewcableoperatorservingtheCity?
IninitialcommunicationswiththeCity,Comcastreferredtotheproposednewcableoperator
entityasSpinCo.ShortlythereafterthenamewaschangedtoMidwestCable.MidwestCable
remainsthenameasofthedateofthisReport,butfollowingcloseoftheTransaction,thename
willchangetoGreatLandConnectionsInc.(“GreatLand”).Forpurposesofthisreportall
referenceswillbetoMidwestCable.
TheTransactioninitiallyprovidesforComcast’screationofMidwestCableandComcast’s
contributionofsystems(andrelatedbusinessassetsandholdings)servingapproximately2.5
millionexistingComcastsubscriberstoMidwestCable.MidwestCableiscurrentlyawholly
ownedsubsidiaryofComcast.Followingthecontribution,Comcastwillspin-offtheMidwest
CablestocktoitspublicshareholdersandMidwestCablewillbecomeanindependent,publicly
tradedcorporationanditsnamewillchangetoGreatLand.Approximatelytwo-thirds(2/3)ofthe
equityandvotingsharesofMidwestCablewillbeheldbyComcastshareholdersandone-third
oftheequityandvotingshareswillbeownedbyCharter.Seepage5ofthisReportfora
diagramofthetransaction.
TimingforActionbyCity
OnoraboutJune17,2014theCityreceivedfromGrantee,FCCForm394-Applicationfor
FranchiseAuthorityConsenttoAssignmentorTransferofControlofCableTelevisionFranchise
(“Application”).Federal,stateandlocallaw,includingthetermsoftheFranchise,providethe
CitywithauthoritytoconsidertheApplication.Thetimeperiodforsuchareviewistypicallyone
hundredtwenty(120)daysfromthedateofreceiptoftheApplication,inthiscaseonorbefore
October15,2014.OnoraboutAugust22,2014ComcastandMidwestCableagreedtoextend
theApplicationreviewperiodforsixty(60)daysuntilDecember15,2014toallowtheCitytime
toreviewadditionalinformationconcerningthequalificationsofMidwestCablewhichwas
providedtotheCityonSeptember30,2014.
OnoraboutSeptember30,2014ComcastandMidwestCableagreedtoafurtherextensionof
theApplicationreviewperiodforthirty(30)daysuntilJanuary15,2015toallowtheCityto
reviewcertainserviceagreementsrelatedtotheTransactionaswellascertainSECfinancial
ThecurrentCitydeadlinefor
filingstobemadeavailableforreviewonOctober31,2014.
actionontheApplicationisJanuary15,2015
.
WhatcantheCityconsider?
PursuanttotheCity’sFranchise,thisproposedTransferisprohibitedwithoutthewrittenconsent
oftheCity.Federal,stateandlocallawprovidestheCitywitharighttoexaminethelegal,
technicalandfinancialqualificationsoftheproposedNewGranteeandMidwestCable.
FollowingreviewoftheApplicationadditionalquestionsweresentontheCity’sbehalfto
ComcastseekingsupplementalinformationregardingthequalificationsofNewGranteeand
MidwestCable.TheTransactioniscomplicatedtodescribebecausecertainoperational
responsibilitieswillbecontractedforbyMidwestCable.BothComcastandCharterwillprovide
certaintransitionservicesandongoingservicestoMidwestCablewhichwillbemorefully
describedherein.
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2574069v1
StructureFollowingtheComcast/TWCMerger
butBeforetheTransactions
ComcastShareholdersCharterStockholders
Comcast
Charter
TWCNewCharter
3
2574069v1
StructureFollowingtheSpin-OffandtheCharterReorganization
butBeforetheMidwestCableMerger
ComcastShareholdersCharterStockholders
(asoftherecorddateforthe(asofimmediatelypriortothe
spin-off)transactions)
Comcast
NewCharter
(includingcashdistributedfrom
MidwestCable
OpCoandournotesissuedto
Comcast)
Charter
Charter
MergerSub
OpCo
(ownstheMidwestCable
TWC
systems,assetsandliabilities
relatingtotheMidwestCable
systemsandcreditfacilities)
4
2574069v1
StructureFollowingtheTransactions
ComcastShareholdersCharterStockholders
(asoftherecorddateforthespin-(asofimmediatelypriortothe
off)
transactions)
Approximately%
Approximately%
NewCharter
Approximately67%
Approximately33%
Comcast
Charter
(includingcashdistributed
MidwestCable
fromOpCoandournotes
issuedtoComcast)
OpCo
MidwestCable
(ownsthe
TWC
systems,assetsandliabilities
MidwestCable
relatingtothe
systemsandcreditfacilities)
5
2574069v1
APPLICABLELAW
InadditiontotheFranchiserequirementswhicharenotspeciallysetforthherein,thefollowing
provisionsofFederallawandStatelawgoverntheactionsoftheCityinactingontherequest
forapprovaloftheTransaction.
FederalLaw
TheCableCommunicationsPolicyActof1984,asamendedbytheCableConsumer
ProtectionandCompetitionActof1992andtheTelecommunicationsActof1996(“Cable
Act”),providesatSection617(47U.S.C.§537):
SalesofCableSystems.Afranchisingauthorityshall,ifthefranchiserequires
franchisingauthorityapprovalofasaleortransfer,have120daystoactupon
anyrequestforapprovalofsuchsaleortransferthatcontainsorisaccompanied
bysuchinformationasisrequiredinaccordancewithCommissionregulations
andbythefranchisingauthority.Ifthefranchisingauthorityfailstorenderafinal
decisionontherequestwithin120days,suchrequestshallbedeemedgranted
unlesstherequestingpartyandthefranchisingauthorityagreetoanextensionof
time.
TheCableActalsoprovidesatSection613(d)(47U.S.C.§533(d))asfollows:
(d)RegulationofownershipbyStatesorfranchisingauthorities.AnyStateor
franchisingauthoritymaynotprohibittheownershiporcontrolofacablesystem
byanypersonbecauseofsuchperson’sownershiporcontrolofanyothermedia
ofmasscommunicationsorothermediainterests.Nothinginthissectionshall
beconstruedtopreventanyStateorfranchisingauthorityfromprohibitingthe
ownershiporcontrolofacablesysteminajurisdictionbyanyperson(1)
becauseofsuchperson’sownershiporcontrolofanyothercablesysteminsuch
jurisdiction,or(2)incircumstancesinwhichtheStateorfranchisingauthority
determinesthattheacquisitionofsuchacablesystemmayeliminateorreduce
competitioninthedeliveryofcableserviceinsuchjurisdiction.
Further,theFederalCommunicationsCommission(“FCC”)haspromulgatedregulations
governingthesaleofcablesystems.Section76.502oftheFCC’sregulations(47C.F.R.§
76.502)provides:
TimeLimitsApplicabletoFranchiseAuthorityConsiderationofTransfer
Applications.
(a)Afranchiseauthorityshallhave120daysfromthedateofsubmissionofa
completedFCCForm394,togetherwithallexhibits,andanyadditional
informationrequiredbythetermsofthefranchiseagreementorapplicablestate
orlocallawtoactuponanapplicationtosell,assign,orotherwisetransfer
controllingownershipofacablesystem.
(b)Afranchiseauthoritythatquestionstheaccuracyoftheinformationprovided
underparagraph(a)mustnotifythecableoperatorwithin30daysofthefilingof
suchinformation,orsuchinformationshallbedeemedaccepted,unlessthe
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2574069v1
cableoperatorhasfailedtoprovideanyadditionalinformationreasonably
requestedbythefranchiseauthoritywithin10daysofsuchrequest.
(c)Ifthefranchiseauthorityfailstoactuponsuchtransferrequestwithin120days,
suchrequestshallbedeemedgrantedunlessthefranchiseauthorityandthe
requestingpartyotherwiseagreetoanextensionoftime.
StateLaw
MinnesotaStatutesSection238.083provides:
SaleorTransferofFranchise.
Subd.1.Fundamentalcorporatechangedefined.Forpurposesofthis
section,"fundamentalcorporatechange"meansthesaleortransferofamajority
ofacorporation'sassets;merger,includingaparentanditssubsidiary
corporation;consolidation;orcreationofasubsidiarycorporation.
Subd.2.Writtenapprovaloffranchisingauthority.Asaleortransferofa
franchise,includingasaleortransferbymeansofafundamentalcorporate
change,requiresthewrittenapprovalofthefranchisingauthority.Thepartiesto
thesaleortransferofafranchiseshallmakeawrittenrequesttothefranchising
authorityforitsapprovalofthesaleortransfer.
Subd.3.Repealed,2004c261art7s29
Subd.4.Approvalordenialoftransferrequest.Thefranchisingauthority
shallapproveordenyinwritingthesaleortransferrequest.Theapprovalmust
notbeunreasonablywithheld.
Subd.5.Repealed,2004c261art7s29
Subd.6.Transferofstock;controllinginterestdefined.Saleortransferof
stockinacorporationsoastocreateanewcontrollinginterestinacable
communicationsystemissubjecttotherequirementsofthissection.
Theterm"controllinginterest"asusedhereinisnotlimitedtomajoritystock
ownership,butincludesactualworkingcontrolinwhatevermannerexercised.
7
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TECHNICALREVIEW
ThetechnicalqualificationstandardrelatestothetechnicalexpertiseandexperienceofNew
GranteeandMidwestCabletoown,operateandmaintaintheSystemintheCityfollowingthe
closingoftheTransaction.Inthiscase,sinceMidwestCablewillbecometheultimateparentof
NewGrantee,ourfocusisonthetechnicalqualificationsofMidwestCable.Insuchareview,
thestandardofreviewisthattheCity’sconsentshallnotbe“unreasonablywithheld.”Because
CharterwillbeprovidingconsiderablesupporttoMidwestCable,wehavealsooutlinedbelow
certainqualificationsofCharterandhaveattemptedtoclarifywhichentitywillprovideservices
intheCity.
BackgroundQualificationsofMidwestCable
MidwestCableisanewlycreatedentity.MidwestCablehasnooperatinghistorythattheCity
canreviewnordoesithaveanyexistingfranchisesunderitscontrol.MidwestCablewillinitially
havenineboardmembers.MidwestCable’sExecutiveManagementTeamwillincludethe
followingcableandcommunicationsindustryexecutives:1)MichaelWillner,Presidentand
CEO;2)LeonardBaxter,VicePresident,ChiefAdministratorOfficer;3)MattSiegel,Executive
VicePresidentandChiefFinancialOfficer;and4)KeithHall,ExecutiveVicePresident,
CorporateAffairs.Mr.Willner,afortyyearcableveteran,istheformerPresidentandCEOof
InsightCommunications.ManymembersoftheMidwestCableexecutiveteamareformer
InsightCommunicationsexecutivesthatworkedunderMr.Willner.MidwestCablewillemploy
regionalmanagersandforcertaincablesystems,localareamanagers,whowillresponsiblefor
overseeingthelocalcablesystemoperationsofMidwestCable.
ResponsestoSupplementalInformation
ComcastandMidwestCableprovidedanidenticalletterdatedSeptember30,2014toallTwin
Cityareajurisdictions(throughlegalcounselsforeachofthejurisdictions)ratherprovidinga
responsetoeachofthespecificquestionsraisedbytheCommissionandCity.Belowisa
summaryoftheinformationprovidedintheComcast/MidwestCablecorrespondencedated
September30,2014.
1.WillMidwestCablehavelocalTwinCityemployees?
Alllocalsystemfieldoperational(technical)personnelwillbeMidwestCableemployees.
Allgovernmentaffairspersonnelinteractingwithlocalfranchisingauthoritieswillalsobe
MidwestCableemployees.OtheroperationalserviceswillbeprovidedbyCharter
personnelasdescribedbelow.
2.WhattransitionserviceswillComcastprovide?
DuringthefirstyearfollowingthecloseoftheTransaction,Comcastwillprovidethe
following“transitionservices”toMidwestCable.Someoftheseserviceswilltransitionto
MidwestCablemorequicklythanothers.
a.FacilitiesandAsset-Based:Networkoperatingcenter(“NOC”)forfiberand
outagemonitoring;national-routefiberleases;InternetProtocolTV(“IPTV”)
infrastructureandsupport;callcentersandspecializedcustomercareactivities
(e.g.,homesecuritymonitoring).
8
2574069v1
b.SoftwarePlatforms:Billingsystems;customerwebsitesandserviceportals;
provisioningandtelephonyplatforms;customerpremiseequipmentsupport
systems;voicemailandemailplatforms;networksupporttools;datawarehouse;
humanresourcesandaccountingsystems.
c.MarketingandSales:TransitionfromComcast/XfinitybrandingtotheMidwest
CableandCharterco-branded“Spectrum”productoffering–includingallofthe
associatedmarketandemployee-facingmarkings,aswellasnationalsales
channelsforresidential,commercialandadvertisingsales.
d.Customer-FacingTransitionServices:Callcentersupport;billingsystems
support;provisioningofvideo;voiceanddataservices;voiceoperations/call
completion;X1platformsupport;customeridentitymanagement;and
email/voicemailcontinuitysupport.
3.WhatserviceswillCharterprovideintheTwinCities?
Foraninitialthree(3)yearterm(withoptionaloneyearextensions)MidwestCablewill
contractwithChartertoprovidecertainmarketingandoperationalservices.Midwest
CablewillpayCharterafeeof4.25percentofMidwestCable’stotalrevenues(voice,
videoanddatarevenues)inreturnfortheseservices.
Charterbackground-ChartercurrentlyoperatescablesystemsthroughoutMinnesotain
suchcitiesasDuluth,St.Cloud,Marshall,AppleValley,Lakeville,Rochester,Mankato,
Winonaandmanyothers.Charterprovidesservicetomorethan6.1millioncustomers
in29statesinwhichitcurrentlyoperates.CharterisaFortune500companyand
employsapproximately23,000people.
a.ProcurementandProgrammingManagementServices.Charterwillprovide
programmingmanagementservicestoMidwestCableincludingnegotiatingand
enteringintovideoprogrammingagreements.
CharterwillprovideprocurementmanagementservicestoMidwestCable.
Examplesofsuchgoodsandservicesare:producthardware,softwarelicensing
andemployeecellularservice.
b.NetworkOperations.CharterwillprovideMidwestCable:(i)telecommunications
servicesthatpreviouslydependedonComcastinasharedservicemodel
including:networkconnectivityforallservicesincludingvoice,videoanddata,
VideoOnDemand,CPEsoftwareandprovisioningmanagement,network
securityandinterfacewithlawenforcement,authenticationofservicesand
networkmonitoringandoutagedetection.
c.Engineering&IT.CharterwillprovideMidwestCabletheCorporateEngineering
servicespreviouslyprovidedbyComcastincluding:architecturaldesign
standards,producttechnicalroadmapsandstandardsandtechnicalroadmaps
andstandards.
CharterwillprovideMidwestCableITservicesincluding:(i)softwareforback
officefunctionsincludingmanagingcustomertransactionsandprovisioningof
services;(ii)managementinformationservicesforaccounting,billing,activity
9
2574069v1
analysis,labormanagement,budgetingandfinancialanalysis;and(iii)
managementofdatacenters.
d.VoiceOperations.CharterwillprovideoriginationservicestoMidwestCable
includingprocessingphonesubscriberordersforphoneinstallationsatthe
subscriber’shomeorbusiness.Theseservicesinclude:orderfulfillmentand
provisioningandlocalnumbermanagementandportability.
e.FieldOperations.CharterwillsupportMidwestCableunderbyprovidingfield
operationsservicesincluding:dispatch,plantdatabasesoftwaresystems,
predictivenetworkfailuresoftwareandmaintenanceprioritization,technician
activityandproductivityreporting,warehousestandardsandCPEhandling
standards,tools,requirementsandstandardsfortechniciancommunications,
plantdesignandconstructionstandardsandfleetmanagement.
f.CustomerService.CharterwillsupportMidwestCablebyprovidingcustomer
careservicesdirectlyorthroughitsvendors.Theseservicesincludecallcenter
servicesforcallanswering,monitoringanddispositioningrelatedtoinbound
sales,billing,repair,andretentionforallproductsandservicessoldbyMidwest
Cable,includingvideo,voiceanddata,onlinechatforsales,serviceandbilling,
onlinecustomercareportalsforself-helpandserviceandcustomeridentity
management.
g.Billing&Collections.Charterwillprovidebillingandcollectionsservices.These
servicesinclude:customerbillingandbillingsystemmanagement,collectionof
customerreceivablesandcashmanagementandcustomerdisconnectsupport.
h.Product.CharterwillprovideMidwestCablewith:(i)customerfacingproduct
developmentdefinitions/standards/softwareandplanningforallbusinessand
consumerproducts;(ii)changeplanningandprojectmanagementservices;and
(iii)websitehosting,videocontentmanagementandwebmailhosting.Any
customerfacingproductsbearingaCharterbrandnameshallbeco-brandedwith
MidwestCable’sbrandnameinsuchamannerthatitiscleartotheconsumerof
suchproductsthatMidwestCableisthepartyprovidingservicestothe
consumer.
i.Marketing&Sales.CharterwillsupportMidwestCablebyproviding:(i)
marketingservicesanddatabasesupporttoenablemass,directandonline
marketingactivities;(ii)analysisofsaleschannel(s)performance;and(iii)
developmentandallcustomerandnon-customerfacingmessaging.
CharterwillsupportMidwestCablebyproviding:(i)programdesignand
managementtoolsthatmaximizeeconomicsalestononsubscribersbydoor-to-
doorsalesrepresentatives;(ii)saleschannelreporting;and(iii)programdesign
formaximizinggrowthinMDUenvironment.
j.AdministrativeandBackofficeServices.AsrequestedbyMidwestCable,
MidwestCablemayleverageadministrativeservicesfromCharter,including
leveragingtheassociatedplatformsandpractices,inareasincludingbutnot
limitedtoaccountspayable,generalledger,databasesystems,andpayroll
administration.
10
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4.WillXfinitycableservicesremainavailable?
CableserviceswilleventuallybetransitionedfromXfinitybrandingtoCharter’s
“Spectrum”brand.MidwestCablecustomerinvoiceswillidentifyproductsandservices
2
asbeing“SpectrumbyMidwestCable.”Theproductsandservicesmayalsobeco-
brandedas“MidwestCableandCharter,”incertainmarkets.
5.CustomerE-MailTransition.
Post-closing,customerswillcontinuetousetheirComcastemailaccountuntilthey
migratetoaMidwestCableemailaccount.Comcastcustomerswillnotindefinitely
retaintheirexisting“@comcast.net”emailaddressaftermigratingtotheMidwestCable
service,asComcastownsthatdomain.However,emailssenttothecustomer’sformer
“@comcast.net”emailaddresswillbeautomaticallyforwardedtothecustomer’snew
MidwestCableemailaddressforan“ampleperiodoftime”thatismutuallyagreeableto
bothcompanies.ItisnotcleariftheemaildomainwillbeownedbyCharterorMidwest
Cable.
6.PhoneNumberContinuity.
TheTransactionwillnotrequireanychangeincustomerphonenumbers.Existing
Comcasttelephonecustomerswillbeabletokeeptheircurrentphonenumbers
permanently.
7.CustomerEquipment.
Customerswillbeabletocontinuetousetheircurrentpremisesequipmentafterthe
Transactioncloses.MidwestCablewillrelyinitiallyonComcastfortransitionservicesto
supporttheX1platform.MidwestCableultimatelywilldeploytheSpectrumproductsuite
developedbyCharter,whichwillincludeacloud-baseduserinterfacesimilartotheone
X1provides.TheSpectrumguideisdesignedtoimprovesignificantlytelevisionsearch
anddiscoveryfunctionality.Ofcriticalimportancehere,theSpectrumproductis
designedtoaccommodatecurrentsubscriberequipment(includingdeployedX1boxes).
Accordingly,CustomerswhoalreadyhaveX1equipmentshouldbeabletocontinue
usingthatequipmentevenafterMidwestCabletransitionstotheSpectrumoffering.
Afterthetransition,MidwestCablevideocustomerswillalsohaveauthenticatedaccess
toprogrammingatnoextrachargeviatheSpectrumTVApp–whichiscompatiblewith
theAppleiPad,iPhone,andiPodTouchrunningiOS6orhigher;allAmazonKindleFire
devices(excepforthefirstgenerationKindleFire);andalltabletsandphonesrunning
Android4.0andabove.
8.CustomerBilling.
Customerswillbegintoseebills(atthesametimeofthemonth)fromMidwestCable
andnotComcast.Approximately15%ofthecustomerspayonline,directlyfromtheir
bank(whetherviarecurringpaymentsorone-time).Thesecustomersaretheonly
customersthatwillberequiredtodoanythingtoadjusttheirbillingarrangementsasthey
2
RecallthatMidwestCable’snamewillchangetoGreatLandConnectionsInc.Presumably,thebrandingwillbetied
tothenameGreatLandnotMidwestCable.
11
2574069v1
willberequiredtoupdatetheiron-linebankinginformationtodirectpaymentstoMidwest
CableratherthantoComcast.Thiswouldnotoccurforseveralmonthsafterclose,and
MidwestCablewillnotifycustomersofthechange–targetingcustomerswhopayinthis
fashionwithmessaging.
9.ContinuationofanInternetAccessSupportProgramforLowIncomeHouseholds.
MidwestCablewillcontinuetoofferInternetEssentialsand,overtime,maymake
changestoproperlyservethisimportantconstituency.
12
2574069v1
FINANCIALREVIEW
I.ScopeofReview
ComcastCorporation,aPennsylvaniacorporation(“Comcast”),istheultimateparent
companyofthecurrentholderoftheFranchisegrantedbytheCity.UndertheFranchise,
Comcast,throughitssubsidiaries,operatestheSystemthatprovidescableservicesandother
communicationservicesintheCity.ComcasthasrequestedtheCity’sapprovaloftheproposed
TransferoftheSystemtoMidwestCable,Inc.(whichultimatelywillbeknownasGreatLand
ConnectionsInc.),aDelawarecorporation(“Midwest”),anentityinitiallywhollyownedby
3
ComcastandsubsequentlyspunofftoComcast’sexistingshareholders.Attherequestofthe
City,Moss&Barnett,PAhasreviewedselectedfinancialinformationthatwasprovidedby
ComcastandMidwestorpubliclyavailabletoassessthefinancialqualificationsofMidwest,asa
publiclytradedentity,followingcompletionoftheproposedtransferoftheSystem.
Thefinancialinformationthatwasprovidedoravailablethroughotherpublicsourcesand
towhichourreviewhasbeenlimited,consistssolelyofthefollowingfinancialinformation
(hereinafterreferredtocollectivelyasthe“FinancialStatements”):
FCCForm394“ApplicationforFranchiseAuthorityConsenttoAssignmentor
1.
TransferofControlofCableTelevisionFranchise”datedJune17,2014,providedby
ComcastCorporation(the“Application”),alongwithsuchotherexhibitsasprovided
therewith;
Form8-KforComcastCorporationfiledwiththeSecuritiesandExchange
2.
CommissiononApril28,2014thatincludestheComcast/CharterTransaction
AgreementbetweenComcastCorporationandCharterCommunications,Inc.datedApril
25,2014(the“TransactionAgreement”);
Form10-KforComcastCorporationfiledwiththeSecuritiesandExchange
3.
CommissiononFebruary12,2014,forthefiscalyearendedDecember31,2013;
Form10-QforComcastCorporationfiledwiththeSecuritiesandExchange
4.
CommissiononOctober23,2014forthefiscalquarterandnine-monthperiodended
September30,2014;
Form8-KforComcastCorporationfiledwiththeSecuritiesandExchange
5.
CommissiononOctober29,2014thatincludesproformafinancialstatementsforthe
ComcastCableSystemstobeContributedtoMidwestCable,Inc.;
FormS-1forMidwestCable,Inc.filedwiththeSecuritiesandExchange
6.
CommissiononOctober31,2014;
TheauditedfinancialstatementsofComcastCorporationandsubsidiariesasof
7.
December31,2013and2012,includingConsolidatedBalanceSheetsasof
December31,2013and2012,ConsolidatedStatementsofIncome,Comprehensive
Income,CashFlowsandChangeinEquityfortheyearsendedDecember31,2013,
3
FormS-1forMidwestCable,Inc.filedwiththeSecuritiesandExchangeCommissiononOctober31,2014(“Form
S-1”)atp.4.
13
2574069v1
2012and2011,andtheIndependentAuditors’ReportofDeloitte&ToucheLLPdated
February12,2014;
ThedraftCharterServicesAgreementbyandbetweenMidwestCable,Inc.and
8.
CharterCommunicationsOperating,LLC.
ThedraftTransitionServicesAgreementbyandbetweenMidwestCable,Inc.
9.
andComcastCorporation;and
SuchotherinformationaswerequestedandthatwasprovidedbyComcast
10.
relatingtothetransfer.
OurprocedureislimitedtoprovidingasummaryofouranalysisoftheFinancial
StatementsinordertofacilitatetheCity’sassessmentofthefinancialcapabilitiesofMidwestto
acquireandoperatetheSystemintheCity.
II.OverviewofTransaction
AsaresultoftheothertransactionsasdiscussedinSectionIIIinthisreportand
pursuanttotheTransactionAgreement,Comcasthasagreedtodivestitselffromcertainassets,
4
whichincludestheSystem,pursuanttoaspin-offtransaction.Thetransactioninitiallyprovides
forComcast’screationofanewcorporatesubsidiary(Midwest)anditscontributionofsystems
(andrelatedbusinessassetsandholdings)servingapproximately2.5millionexistingComcast
5
subscriberstoMidwest.ThesesystemsarelocatedintheMidwesternandSoutheasternUnited
67
States.MidwestiscurrentlyawhollyownedsubsidiaryofComcast.
Followingthecontribution,Comcastwillspin-offtheMidweststocktoitspublic
8
shareholdersandMidwestwillbecomeapubliclytradedcorporation.Priortothespin-offof
Midwest,Midwestwillincurdebtinanamountequaltofivetimesthestand-aloneMidwest
assets’earningsbeforeinterest,taxes,depreciationandamortization(EBITDA)anddistribute
9
thedebtproceedstoorexchangethosedebtswithComcast.Midwestestimatestheamountof
10
thisinitialdebttobeapproximately$7.8billion.Thistransactionissubjecttomanyconditions
includingfederalregulatoryapproval,performancecovenants,financing,favorabletaxopinions
11
andotherrequirementsoftheparties.Inaddition,ComcastandMidwestwillenterintoa
TransitionServicesAgreementpursuanttowhichComcastwillcontinuetoprovidecertain
servicestoMidwestforaperiodof12to18monthspursuanttotheapplicablestatementsof
12
work.
Afterthecompletionoftheabovetransactions,CCH1,LLC(“NewCharter”),awholly
ownedsubsidiaryofCharterCommunications,Inc.willacquireanapproximatelythirty-three
4
Id.atp.1.
5
Id.
6
Form8-KforComcastCorporationfiledwiththeSecuritiesandExchangeCommissiononApril28,2014atpp.1-3
andFormS-1atp.1.
7
FormS-1atp.1.
8
Id.atp.2.
9
Id.atp.1.
10
Id.
11
Id.atp.2.
12
DraftTransitionServicesAgreementbyandbetweenMidwestCableInc.andComcastCorporation.
14
2574069v1
13
percent(33%)interestinMidwest.TheacquisitionisstructuredasamergerofNewCharter
14
intoMidwest.Asconsiderationforthismerger,NewCharterwillissuenewstocktothe
Midwestshareholderswhichwillrepresentabouttenpercent(10%)ofCharter’sissuedand
15
outstandingstockafterthemergertransaction.Inconjunctionwiththistransaction,Charter
willenterintoaCharterServicesAgreementwithMidwestinwhichCharterwillprovideMidwest
withcertainservices,including,butnotlimitedtocorporateservices,networkoperations,
engineeringandIT,voiceoperations,fieldoperationssupportservices,customerservices,
billingandcollections,productservices,marketingservices,sales,businessintelligenceand
16
intellectualpropertylicensing.Charterwillreceivecompensationforout-of-pocketcosts
17
relatedtotheseservicesplusaservicesfeeequalto4.25%ofMidwest’sgrossrevenues.The
CharterServicesAgreementhasaninitialthree(3)yeartermwithautomaticone(1)year
18
renewals.
Asaresultofthetransactionsdescribedabove,Midwestwillbecomeapubliclytraded
companyownedapproximatelytwo-thirdsbyComcast’sexistingshareholdersandone-thirdby
19
Charter’sexistingshareholders.ThecurrentComcastshareholderswillreceivesharesof
Charter’spubliclytradedstockandMidwest’spubliclytradedstockaspartofthetransactions.
20
Thetransactionsareexpectedtocloseinearly2015.
IIIOverviewofRelatedTransactions
Thespin-offtransactionispartofalargergroupoftransactionsthatinvolveCharter
Communications,Inc.,aDelawarecorporation(“Charter”),andTimeWarnerCableInc.,a
21
Delawarecorporation(“TWC”).Theothertransactionsinclude:
TWC’smergerintoTangoAcquisitionSub,Inc.,awhollyownedsubsidiaryof
1.
Comcast;
Charter’spurchasefromComcastofsystemscurrentlyservedbyTWCthat
2.
representapproximately1.5millionvideosubscribers;
Charter’sexchangethatincludesitstransfertoComcastofcertaincablesystems
3.
thatrepresentapproximately1.6millionvideosubscribersinexchangeforTWCsystems
thatrepresentapproximately1.5millionvideosubscribers;andCharter’sinternal
reorganizationthatresultsinthecreationofNewCharter.
13
Form10-QforComcastCorporationfiledwiththeSecuritiesandExchangeCommissiononOctober23,2014for
thefiscalquarterandnine-monthperiodendedSeptember30,2014(“Form10-Q”)atp.30.
14
Id.
15
Id.
16
DraftCharterServicesAgreementbyandbetweenMidwestCable,Inc.andCharterCommunicationsOperating,
LLCandFormS-1atp.70.
17
Id.
18
Id.
19
FormS-1atp.2.
20
Form10-Qatp.29.
21
Comcast/CharterTransactionAgreementbetweenComcastCorporationandCharterCommunications,Inc.dated
April25,2014.
15
2574069v1
IV.OverviewofMidwest
Midwestisanewlyformedcorporationthatwillprovidefullservicecommunicationsand
cableservices,alongwithothervideoprogramming,Internetservices,andvoiceservicesto
22
residentialandcommercialcustomersincertainmarketsintheUnitedStates.Midwestwas
formedinMayof2014asalimitedliabilitycompanyandconvertedtoacorporationin
23
Septemberof2014.Afterthecontributionandspin-off,Midwestwillbethefifthlargestcable
24
operatorintheUnitedStates.Afterthetransaction,Midwest’scablesystemwillpass
approximately6.3millionpotentialcustomersandserveapproximately2.5millionresidential
25
andcommercialcablecustomers.Approximatelysixty-fivepercent(65%)ofMidwest’s
customerswillbelocatedintheDetroit,Michigan;St.Paul/Minneapolis,Minnesota;and
26
Indianapolis,Indianamarkets.Asofthecurrenttime,anestimateofthenumberofdirect
employeesemployedbyMidwestisunstatedandmostMidwestserviceswillbeprovidedby
27
ComcastorCharterthroughtheseparateserviceagreements.Midwest’smanagementhasan
28
extensivebackgroundinthecableindustry.
Cableprovidersandtelecommunicationcompaniesoperateinacompetitive
environmentandthefinancialperformanceofcabletelevisionoperators,likeMidwestandother
cableoperators,aresubjecttomanyfactors,including,butnotlimitedto,thegeneralbusiness
conditions,programingcosts,incumbentoperators,digitalbroadcastsatelliteservice,
technologyadvancements,burdensomeservicecontracts,andcustomerpreferences,aswell
ascompetitionfrommultiplesources,whichprovideanddistributeprogramming,information,
29
news,entertainmentandothertelecommunicationservices.Midwesthasnooperatinghistory
asastand-alonecompanyandisdependentuponComcastandCharterforallofitsessential
30
servicesandoperations.Inaddition,Midwest,asaresultofthetransaction,willbeahighly
leveragedcompany,whichmayreduceitsabilitytowithstandprolongedadversebusiness
conditionsandthereisnoassurancethatMidwestwillbeabletoobtainfinancinginthefutureto
31
coveritscashflowneeds.Thecablebusinessisinherentlycapitalintensive,requiringcapital
fortheconstructionandmaintenanceofitscommunicationssystems.Wespecificallyrequested
informationonMidwest’scapitalexpendituresbudget,butComcastdeclinedtoprovidethat
32
informationtous.EachofthesefactorscouldhaveasignificantfinancialimpactonMidwest
anditsabilitytocontinuetooperatetheSystem.
V.Findings
Wehaveanalyzedthehistoricalfinancialstatementsjustfortheassetstobecontributed
byComcasttoMidwestandpubliclyfiledinformation,alongwithitsServicesAgreementwith
CharterandTransitionServicesAgreementwithComcast.Midwestdeclinedtoprovideuswith
22
FormS-1atp.50.
23
Id.
24
FCCForm394“ApplicationforFranchiseAuthorityConsenttoAssignmentorTransferofControlofCable
TelevisionFranchise”datedJune17,2014,providedbyComcastCorporation(the“Application”),–Coverletterdated
June17,2014.
25
FormS-1atp.50.
26
Id.atpp.50-51.
27
Id.atp.63.
28
Application–Exhibit7.
29
FormS-1atpp.8-17.
30
Id.atp.13.
31
Id.atpp.17-19.
32
CorrespondencetoauthorfromKlaytonF.Fennell,VicePresident,GovernmentAffairs,ComcastCorporation.
datedJuly28,2014atp.15.
16
2574069v1
projectedstatementsofcashflowandincomeandabalancesheetforitsfutureoperationsand
furtherstatedthat“Comcasthasnotandwillnotprovideforwardlookinganalysesrelatedto
33
MidwestCable…”.Furthermore,otherthanthefootnotedisclosuresinthehistoricalfinancial
statementswhichwereminimal,wewerenotprovidedwiththedetailedinformationonhow
Comcastdetermineditsrevenueandexpenseallocationsanditsassumptionsusedtoprepare
theMidwestfinancialstatements.Deloitte&ToucheLLP,oneofthebiggestaccountingfirmsin
theUnitedStates,providedanIndependentAuditors’ReportdatedOctober24,2014onthe
ComcastCableSystemstobeContributedtoMidwestCable,Inc.andstatedtheMidwest
financialstatementsfairlypresent,inallmaterialrespects,thefinancialconditionoftheComcast
34
assetstobecontributedtoMidwest.TheAuditors’Reportstates“Theaccompanying
combinedfinancialstatementreflecttheassets,liabilities,revenueandexpensesdirectly
attributabletotheCompany\[Midwest\],aswellasallocationsdeemedreasonablebyComcast
Corporationmanagement,anddonotnecessarilyreflectthecombinedfinancialposition,result
ofoperations,andcashflowsthatwouldhaveresultedhadtheCompany\[Midwest\]been
35
operatedasastand-aloneentityduringtheperiodpresented.”
Thesehistoricalauditedfinancialstatementsdonotincludetransactioncostsand
ongoingadditionalcostsandsynergiesofthenewMidwestoperation,includingthenewdebt
andvariousnewservicefeesforservicesprovidedbyCharterandComcast.Midwest’s
managementhasprovidedfinancialstatement,asadjustedforsomeoftheseothercostsand
36
expensesthatwerenotrecognizedbyComcasthistorically.Thesefinancialstatementsdonot
37
includeallpotentialadjustmentitemsasnotedinMidwest’spublicfilings.
Assuch,wearereportingourFindingshereunderbaseduponComcast’shistorical
informationasadjusted,fortheassetsandsystemscontributedtoMidwest.Overall,froma
financialpoint-of-view,theinformationprovidedbelowshowsthatMidwestwillbehighly
leveragedandhavesignificantthirdpartycostsandobligations.
AnalysisofFinancialStatements
.FederallawandFCCregulationsprovide
1.
franchisingauthorities,suchastheCity,withlimitedguidanceconcerningtheevaluation
ofthefinancialqualificationsofanapplicantforacablefranchise.Inevaluatingthe
financialcapabilitiesofacableoperator,webelieveitisappropriatetoconsiderthe
performanceofanapplicantbasedontheapplicant’shistoricalperformanceplusits
projectedorbudgetedfinancialinformationalongwithitsfinancialcapabilities
(financing).Withanewcompany,historicalinformationisnotavailable.Howeverinthis
case,theproformafinancialstatementswithrespecttotheassetscontributedby
ComcasttoMidwesthavebeenpreparedbyComcastbaseduponitsmanagement’s
assumptions.WehavenotindependentlyverifiedtheComcastmanagement’s
allocationsandassumptionsandarerelyingonthepubliclydisclosedinformationas
providedbyMidwestandComcast.WebelieveageneralreviewoftheMidwestpro
formafinancialinformationmayprovidesomeinsightintothegeneralfinancial
33
Id.
34
Form8-KforComcastCorporationfiledwiththeSecuritiesandExchangeCommissiononOctober29,2014that
includesproformafinancialstatementsfortheComcastCableSystemstobeContributedtoMidwestCable,Inc.
(“Form8-K”)atp.F-1.
35
Id.
36
FormS-1atpp.31-36.
37
Id.atp.36.
17
2574069v1
operationsofMidwestwithrespecttotheApplication,butwenotethattherearemany
38
unansweredquestionsregardingMidwest’soperationsgoingforward.
Asnotedabove,Midwest’soperationsincludebothcabletelevisionvideoservicesand
non-cabletelevisionservices.AccordingtoMidwest’sfinancialstatements,Midwest’s
residentialvideoservicecompromisedapproximatelyforty-eightpercent(48%)tofiftypercent
39
(50%)ofitsrevenuein2013and2014.TheMidwestfinancialinformationdiscussedbelow
includesalloftheMidwestoperations,includingthenon-cabletelevisionvideoservices.We
haveanalyzedMidwest’sproformafinancialstatements,asadjustedasnotedbelow,asof
June30,2014andhistoricalfinancialstatementsasofDecember31,2013and2012in
providingtheinformationinthisSection.Asdescribedbelow,thesefinancialstatementsdonot
reflectthecurrentfairvalueofMidwest’sassetsandliabilities,butrathertheassetsand
liabilitiesarepresentedbasedonComcast’shistoricalcostasdeterminedbyComcast’s
40
management.
SpecificFinancialStatementDataandAnalysis
.
2.
Assets
a..TheComcastassetstransferredtoMidwesthad(i)current
assetsof$168millionasadjusted,$173million,and$152million;(ii)working
capitalofanegative$211millionasadjusted,anegative$206million,anda
negative$196million;and(iii)totalassetsof$9,043millionasadjusted,$8,999
million,and$8,992millionasofJune30,2014andDecember31,2013and
41
2012,respectively.Workingcapital,whichistheexcessofcurrentassetsover
currentliabilities,isashort-termanalyticaltoolusedtoassesstheabilityofa
particularentitytomeetitscurrentfinancialobligationsintheordinarycourseof
business.Thetrendshowsaslightincreaseinthenegativeworkingcapitalfrom
December31,2012toJune30,2014,andsuggeststhatMidwest’scashflow
maybeunabletomeetiscurrentobligations.Midwest’scurrentratio(current
assetsdividedbycurrentliabilities)asofJune30,2014,of0.44/1iswellbelowa
42
generallyrecognizedstandardof1:1forasustainablebusinessoperation.
Approximatelyseventy-fivepercent(75%)ofMidwest’sassetsarecomprisedof
43
itsintangibleFranchiseRightsandGoodwill.AccordingtoComcast,thecurrent
fairmarketvaluesofMidwest’snetassetsisconsiderablyinexcessofthe
44
historicalfinancialinformation.
LiabilitiesandNetEquity
b..Midwest’sproformafinancialstatements
show(i)currentliabilitiesof$379millionasadjusted,$379millionand$348
million;and(ii)deferredtaxesof$2,836million,$2,842millionand$2,835million
45
asofJune30,2014andDecember31,2013and2012,respectively.Midwest’s
long-termdebtisestimatedtobe$7.8billionwhichwillhaveasignificantimpact
38
CorrespondencetoauthorfromKlaytonF.Fennell,VicePresident,GovernmentAffairs,ComcastCorporation.
datedJuly28,2014.
39
FormS-1atp.44.
40
Id.
atp.31.
41
Form8-Katp.F-2oftheDecember31,2013FinancialStatementsandFormS-1atp.32.
42
FormS-1atp.32.
43
Id.
44
Id.
45
Form8-Katp.F-2oftheDecember31,2013FinancialStatements,atp.F-1oftheJune30,2014Financial
StatementsandFormS-1atp.32.
18
2574069v1
46
onMidwest’sbalancesheet.Thespecifictermsofthenewindebtednesshave
notbeendisclosedandareunknown;howeverMidwesthasusedaninterestrate
47
offivepercent(5%)onitsadjustedproformafinancialstatements.This
additionaldebtwillrequireMidwesttogenerateadditionalcashflow,including
throughtheoperationsanditsservicearrangementwithCharter,tofunditsdebt
service.Midwest’sinitialdebtleveragewillbenogreaterthan5.0xits2014
EBITDA,whichisconsistentwithsomeothercableoperators(Charterat5.0x,
48
Cablevisionat5.3x,Suddenlinkat5.7xandMediacomat5.3x).Inorderto
closethesetransactions,Midwestandtheotherpartieswillberequiredtoobtain
certainlevelsoffinancing,whichifnotreceivedwouldterminatetheabove
describedtransactions.
IncomeandExpense
c..Midwest’sproformaincomestatements,as
adjustedreport(i)revenueof$2,299millionand$4,470million;(ii)operating
expensesof$1,839millionand$3,618million;and(iii)operatingincomeof$460
millionand$852millionforthesix-monthperiodendingJune30,2014andthe
49
yearendingDecember31,2013,respectively.Midwestisreportingnetincome
initsproformafinancialstatementsasadjustedof$158millionand$272million
forthesix-monthperiodendingJune30,2014andtheyearendingDecember
50
31,2013,respectively.TheabilitytogeneratecashisimportantforMidwest
duetoitshighlyleveragedoperations.Aonepercent(1%)increaseinthe
interestrateofthe$7.8billionofdebtwillresultinanadditional$78millionof
interestexpenseannually.Asaresultofthetransactionsandchangesinits
businessandbusinessstructure,Midwestwillincursignificantnon-recurring
expenseswhichmaynegativelyaffectMidwest’sshort-termincomestatement
performance.Inaddition,asaresultofthetransaction,Midwestmayberequired
toincursignificantcapitalexpendituresfortheassimilationitsnewbusinessand
servicesalongwithadditionalprogramingcoststomaintainitscurrent
51
programminginthefuture.
VI.Summary
UsingtheFCCForm394toestablishanabsoluteminimumstandardoffinancial
qualificationsthataproposedapplicantmustdemonstrateinordertobequalifiedasthe
successoroperatoroftheSystem,ComcastandMidwesthavetheburdenofdemonstratingto
theCity’ssatisfactionthatMidwesthas“sufficientnetliquidassetsonhandoravailablefrom
committedresources”toconsummatethetransactionandoperatetheSystem,togetherwithits
newlyacquiredoperations,forthree(3)months.Thisminimumstandardisnoteasytoapplyto
anewlyformedhighlyleveragedcompanywithsignificanttransactionandongoingservice
costs.Ingeneral,wehavealsoconsideredthestandardpracticeoflendersthatrequires
borrowerstomaintaincertaindebtcovenantsonnewandoutstandingdebt,includingcertain
cashflowrequirements,financialratiosandadequatesecurity,inordertomakeandmaintaina
loanandthatifaborrowerdoesnotmeettheserequirements,aloanmaynotbeinitiallyfunded.
46
Form10-Qatp.5.
47
FormS-1atp.35.
48
LettertoBrianT.Grogan,Esq.ofMoss&Barnett,PAfromComcastandMidwestCable,datedSeptember30,
2014,atp.15.
49
FormS-1atpp.33-34.
50
Id.
51
Id.atp.3.
19
2574069v1
BasedsolelyonMidwest’sfinancialinformationthatwereviewed,Midwest’spublic
filingsassumethatMidwestwillreceivesufficientdebtcommitmentsandtherequireddebtto
consummatetheTransactionAgreement.Basedontheforegoingandlimitedstrictlytothe
financialinformationanalyzedinconductingthisreview,wedonotbelievethatComcast’s
requestfortransferoftheownershipoftheSystemtoMidwestcanreasonablybedeniedbased
solelyonalackoffinancialqualificationsofMidwest,ifthefinancingtoconsummatethe
transactionisobtainedbyMidwest,asMidwestwouldhavethefundstoacquireandoperatethe
Systemforatleastsomeinitialperiodoftime.Thefailuretoobtainthefinancingwouldresultin
theterminationoftheTransactionAgreementandproposedtransferofownership.Duetothe
manyuncertaintiesandlackofinformationregardingtheproposedfinancingandfuture
operations,thereisnotenoughinformationthathasbeenmadeavailabletoreviewtomakeany
conclusionsregardingthefinancialqualificationofMidwest’sabilitytoownandoperatethe
Systemaftertheacquisitionandinitialoperatingperiod.
IntheeventtheCityelectstoproceedwithapprovingtheproposedtransferofcontrol,
theassessmentofMidwest’sfinancialqualificationsshouldnotbeconstruedinanywayto
constituteanopinionastothefinancialcapabilityorstabilityofMidwestto(i)operateunderthe
Franchise,(ii)operateitsotheroperations,or(iii)successfullyconsummatethetransactionsas
contemplatedintheTransactionAgreement.Thesufficiencyoftheproceduresusedinmaking
anassessmentofMidwest’sfinancialqualificationsanditscapabilitytooperatetheSystemis
solelytheresponsibilityoftheCity.Consequently,wemakenorepresentationregardingthe
sufficiencyoftheproceduresusedeitherforthepurposeforwhichthisanalysisoffinancial
capabilitiesandqualificationswasrequestedorforanyotherpurpose.
Lastly,inordertoensurecompliancewithitsobligationstooperatetheSystemand
sincewehavebasedasignificantpartofouranalysisonthefinancialstatements,asadjusted,
ofMidwest,theparententity,werecommendthattheCitymaintainanyperformancebondsor
corporateparentguaranty,ifany,requiredunderanyCityFranchise.Ifsecurityfundsarenot
requiredintheCityFranchise,theCitymaywishtoconsiderpursuingacorporateparent
ExhibitB
guarantyfromMidwestinaformassetforthinorasotherwisemutuallyagreeableto
MidwestandtheCity.AmodelresolutionhasalsobeenattachedfortheCity’sreviewand
ExhibitA
considerationas.
20
2574069v1
EXHIBITA
RESOLUTIONNO.
APPROVINGTHETRANSFEROFTHECABLEFRANCHISE
ANDCHANGEOFCONTROLOFTHEGRANTEE
WHEREAS,
ComcastofArkansas/Florida/Louisiana/Minnesota/Mississippi/Tennessee,
Inc.(“Grantee”),currentlyholdsacabletelevisionfranchise(“Franchise”)grantedbytheCityof
,(“City”);and
WHEREAS,
Granteeowns,operatesandmaintainsacabletelevisionsystemintheCity
(“System”)pursuanttothetermsoftheFranchise;and
WHEREAS,
onFebruary12,2014,ComcastCorporation("Comcast")andTimeWarner
CableInc.("TWC")enteredintoanAgreementandPlanofMerger;and
WHEREAS,
onApril25,2014,ComcastandCharterCommunications,Inc.("Charter")
enteredintotheComcast/CharterTransactionsAgreement(the"Agreement"),pursuantto
whichtheGrantee,througharestructuringunderComcast'sownership,willbecomeComcastof
Minnesota,LLC("NewGrantee")andimmediatelythereafterwillbecomeawholly-owned
subsidiaryofMidwestCable,Inc.("MidwestCable")(the"Transaction");and
WHEREAS,
onoraboutJune17,2014theCityreceivedfromGrantee,FCCForm394-
ApplicationforFranchiseAuthorityConsenttoAssignmentorTransferofControlofCable
TelevisionFranchise(“Application”);and
WHEREAS,
FederallawandthetermsoftheFranchiserequirethattheCitytakeaction
toconsidertheApplicationwithinonehundredtwenty(120)daysofthedateofreceipt,oronor
beforeOctober15,2014;and
WHEREAS,
onoraboutAugust22,2014ComcastandMidwestCableagreedtoextend
theApplicationreviewperiodforsixty(60)daysuntilDecember15,2014toallowtheCitytime
toreviewtheadditionalinformationconcerningthequalificationsofMidwestCableprovidedto
theCityonSeptember30,2014;and
WHEREAS,
onoraboutSeptember30,2014ComcastandMidwestCableagreedtoa
furtherextensionoftheApplicationreviewperiodforthirty(30)daysuntilJanuary15,2015to
allowtheCitytoreviewcertainserviceagreementsrelatedtotheTransactionaswellascertain
SECfinancialfilingstobemadeavailableforreviewonOctober31,2014;and
WHEREAS,
SectionoftheFranchiserequirestheCity’sadvancewritten
consentpriortotheGrantee’stransferoftheFranchise;and
WHEREAS,
asaresultoftheproposedTransactionGranteehasrequestedconsent
fromtheCitytotheproposedtransferoftheFranchise;and
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2574069v1
WHEREAS,
theCityhasreviewedtheproposedTransaction,andbasedoninformation
providedbyGranteeandMidwestCableandontheinformationreceivedbytheCityfromthe
SouthwestSuburbsCableCommission(“Commission”),theCityhaselectedtoapprovethe
proposedTransactionsubjecttocertainconditionsassetforthherein.
NOW,THEREFORE
,theCityof,hereby
resolvesasfollows:
1.
Alloftheaboverecitalsareherebyincorporatedbyreferenceasiffullysetforth
herein.
2.
TheFranchiseisinfullforceandeffectandGranteeisthelawfulholderofthe
Franchise.
3.
NewGranteewillbethelawfulholderoftheFranchiseaftercompletionofthe
Transaction.
4.
TheCityherebyconsentsandapprovesoftheproposedTransactionsubjectto
thebelowconditions.
a.
NewGranteeagreeingtoassumeanyandallliabilities,knownand
unknown,undertheFranchise.
b.
Withintwenty(20)daysofthedateofadoptionofthisResolution,New
GranteeshallexecuteandfilewiththeCitytheAcceptanceandAgreement
attachedheretotoverifyNewGrantee’scompliancewiththetermsand
conditionsofthisResolution;and
c.
Withinthirty(30)daysfollowingcloseoftheTransaction,MidwestCable
(alsotobeknownasGreatLandConnectionsInc.)shallexecuteandprovidethe
CitywiththeCorporateParentGuarantyattachedheretoandincorporatedby
reference.
d.
NewGranteeshallprovidebothSDandHD(simulcast)capacityforthe
City’sgovernmentaccessPEGchannel-identicaltowhattheGranteecurrently
providestotheCityofEdina,MinnesotaundertheFranchise.
e.
NewGranteeshallmaintainandprovide(asGranteecurrentlyprovides),
freeofchargetotheCity,CommissionandtheCommission’smembercities,the
existingPEGplaybacktransmissionconnectivityandComcastfiberandcoax
cableinthefollowingmanner:
i.AllfibercomingtoandfromtheexistingComcastHeadend
building-10210CrosstownCirclenecessaryforCommissionPEG
transmissions.
ii.NewGranteeshallprovide,maintainandreplaceanyexisting
routers,switchingequipmentandrelatedfacilitiesattheheadendthat
A-2
2574069v1
mayberequiredtomaintainthesamePEGaccessfunctionalityas
GranteecurrentlyprovidesandasotherwiserequiredbytheFranchise.
iii.TheCity,CommissionandCommission’smembercitiesshall
havetherighttocontinuetousemaintainthefiber&splicepointsat
10210CrosstownCircle.
iv.Intheeventheadendisrelocatedfrom10210CrosstownCircle,
allcostsandexpensesrequiredtomaintainthePEGplayback
transmissionconnectivityandComcastfiberandcoaxcableshallbe
providedbyNewGranteefreeofchargetotheCity,Commissionandthe
Commission’smembercities.
v.NewGranteeshallprovide,maintainandreplacetheexisting
terminationequipment(Modulators)tofacilitatethePEGprogramming
transmissiontoeachoftheCommission’smembercitiesinfollowing
amounts-Edina(6),Richfield(1),Hopkins(1),andMinnetonka(1).
f.
NewGranteewillparticipateinquarterlymeetingswithmembersofthe
CommissionortheCommission’sdesigneesforthefirsttwo(2)yearsfollowing
thecloseoftheTransactiontoverifythatsubscriberissuesandconcernsare
beingaddressedbyNewGranteeoranyotherentitythatmayhaveinteraction
withsubscriberswithintheCity.Ifissuesarenotbeingaddressed,NewGrantee
agreestomeetwithCommissionandCitystaff,asdirected,toexplainsteps
beingundertakentoaddresssubscriberconcernsandNewGranteewillprovide
regularandtimelyupdatestotheCommissiontoprovideverificationofcorrective
actionsbeingundertakentoaddressunresolvedissues.
g.
NewGranteewillmaintainan“escalatedcomplaintprogram”toescalate
unresolvedcabletelevisioncomplaintsfromsubscribers.Oneormore
specificallyidentifiedemployee(s)ofNewGranteeshallbeavailableto
CommissionorCitystaffviaemailforreportingissues.Thesespecifically
identifiedemployee(s)ofNewGranteewillhavetheabilitytoescalateservice
issuestoaseniorofficerofNewGranteeorNewGrantee’sparentcompany
whennecessary.NewGranteewillfollow-upwithCommissionorCitystaffby
emailorbyphonewithasummaryoftheresultsofthecomplaint(s).
h.
NewGrantee’scompliancewiththerequirementsofparagraphsc,d,e,
andfofthisResolutionshallbehandledundertheFranchise.NewGranteeshall
besubjecttoavailableenforcementproceduresandremediesasifthese
obligationsweresetforthintheFranchise.
i.
Comcastshall,withintwenty(20)daysofthedateofadoptionofthis
Resolution,fullyreimburseCityforallofCity’sreasonablecostsandexpensesin
connectionwiththeCity’sreviewoftheproposedTransaction,includingwithout
limitation,allcostsincurredbytheCityforexpertsandattorneysretainedbyCity
toassistinthereviewaswellasnoticeandpublicationcosts(“Reimbursement”).
A-3
2574069v1
i.
TheReimbursementshallnotbedeemedtobe“FranchiseFees”
withinthemeaningofSection622oftheCableAct(47U.S.C.§542),nor
shalltheReimbursementbedeemedtobe(i)“paymentsinkind”orany
involuntarypaymentschargeableagainsttheFranchiseFeestobepaid
totheCitybyNewGranteepursuanttotheFranchise.
ii.
TheReimbursementshallbeconsideredarequirementorcharge
incidentaltotheawardingorenforcingoftheFranchise.
5.
IntheeventtheproposedTransactioncontemplatedbytheforegoingresolution
isnotcompleted,foranyreason,theCity’sconsentshallnotbeeffective.Ifanyofthe
conditionssetforthhereinarenotmet,theCity’sconsenttotheproposedTransaction
shallbenullandvoidandofnoeffect.
ThisResolutionshalltakeeffectandcontinueandremainineffectfromandafterthe
dateofitspassage,approval,andadoption.
ApprovedbytheCityof,Minnesotathisdayof,2014.
ATTEST:CITYOF,MINNESOTA
By:By:
Its:Its:
A-4
2574069v1
ACCEPTANCEANDAGREEMENT
ComcastofMinnesota,LLCherebyacceptthisResolutionNo.
(“Resolution”)andagreetobeboundbythetermsandconditionsofthisResolutionandthe
termsandconditionsoftheFranchisereferencedwithintheResolution.
Datedthisdayof,2014.
ComcastofMinnesota,LLC
By:
Its:
SWORNTOBEFOREMEthis
___dayof___________,2014.
NOTARYPUBLIC
A-5
2574069v1
EXHIBITB
CORPORATEPARENTGUARANTY
THISAGREEMENT
ismadethisdayof__________,201__(this“Agreement”),by
andamongGreatLandConnectionsInc.(f/k/aMidwestCable,Inc.),aDelawarecorporation(the
“Guarantor”),theCityof_________________,Minnesota(“FranchisingAuthority”),and
___________________________________,a____________________(“Company”).
WITNESSETH
WHEREAS
,on__________________,20__theFranchisingAuthorityadoptedOrdinanceNo.
_____________grantingaCableTelevisionFranchisewhichisnowheldby
_____________________(the“Franchise”),pursuanttowhichtheFranchisingAuthorityhas
grantedtherightstoown,operate,andmaintainacabletelevisionsystem(“System”);and
WHEREAS
,pursuanttotheComcast/CharterTransactionAgreementdatedApril25,2014by
andbetweenCharterCommunication,Inc.,aDelawarecorporation,andComcastCorporation,
aPennsylvaniacorporation,(“Agreement”),theFranchisewillbetransferredtotheCompany
andtheGuarantorwillacquirecontroloftheCompanyasanindirectsubsidiaryofGuarantoras
aresultofComcastCorporation’scontributionandspinoffofcertaincabletelevisionsystems
pursuanttotheAgreement(“ChangeinControl”);and
WHEREAS
,CompanyandComcastCorporationhaverequestedtheconsenttotheChangeof
ControlinaccordancewiththerequirementsofSection___oftheFranchise;and
WHEREAS
,pursuanttoResolutionNo.,dated,20______,
FranchisingAuthorityconditioneditsconsenttotheChangeofControlontheissuanceby
GuarantorofacorporateparentguarantyguaranteeingcertainobligationsofCompanyunder
theFranchise.
NOW,THEREFORE
,inconsiderationoftheforegoingpremisesandforothergoodand
valuableconsideration,thereceiptandsufficiencyofwhichareherebyacknowledged,in
considerationoftheapprovaloftheChangeofControl,Guarantorherebyunconditionallyand
irrevocablyagreestoprovideallthefinancialresourcesnecessaryfortheobservance,
fulfillmentandperformanceoftheobligationsoftheCompanyundertheFranchiseandalsoto
belegallyliableforperformanceofsaidobligationsincaseofdefaultbyorrevocationor
terminationfordefaultoftheFranchise.
ThisAgreement,unlessterminated,substituted,orcanceled,asprovidedherein,shallremainin
fullforceandeffectforthedurationofthetermoftheFranchise.
B-1
2574069v1
UponsubstitutionofanotherGuarantorreasonablysatisfactorytotheFranchisingAuthority,this
Agreementmaybeterminated,substituted,orcanceleduponthirty(30)dayspriorwrittennotice
fromGuarantortotheFranchisingAuthorityandtheCompany.Suchterminationshallnotaffect
liabilityincurredoraccruedunderthisAgreementpriortotheeffectivedateofsuchtermination
orcancellation.
GREATLANDCONNECTIONSINC.(F/K/A
MIDWESTCABLE,INC.)
By:
Its:
STATEOF)
)ss.
COUNTYOF)
Theforegoinginstrumentwassubscribedandsworntobeforemethisdayof
20___,by,the
of.
B-2
2574069v1
ЊЋΉЊЉΉЋЉЊЍ
Comcast/Midwest Cable
Transfer of Franchise
Southwest Suburban Cable Commission
December 3, 2014
Brian T. Grogan, Esq.
(612) 877-5340
Brian.Grogan@lawmoss.com
Њ
Comcast/TWC Merger
•Comcast merger with Time Warner Cable
–Announced February 12, 2014
–Comcast acquires TWC’s 11.4 M cable subs
–Results in Comcast controlling 34 M cable subs
•Requires local, state and federal approvals
•Comcast voluntarily offers to divest subs
–Comcast seeks to shed 4 M cable subs
–Comcast seeks to get down to 30 M cable subs
Ћ
Њ
ЊЋΉЊЉΉЋЉЊЍ
Comcast TWC
34 million subscribers
Ќ
Pre-Merger Cable Markets
Ѝ
Ћ
ЊЋΉЊЉΉЋЉЊЍ
Comcast / Charter
•Comcast and Charter Communications
–Announced April 25, 2014
–Comcast to sell 1.4 M cable subs to Charter
–Comcast and Charter to swap subs
•1.5M to Charter
•1.6M to Comcast
Ў
Charter Overview
•Charter operates cable systems in MN
–Duluth, St. Cloud, Marshall, Apple Valley, Lakeville, Rochester,
Mankato, Winona and many others
•Charter provides service to
–6.1 million subs
–In 29 states
•Charter is a Fortune 500 company
–Employs approximately 23,000 people
Џ
Ќ
ЊЋΉЊЉΉЋЉЊЍ
Midwest Cable
•2.5 M subs to be divested to newentity
Former Comcast properties in MN, MI, IL, IN, Al and others
–
•Twin Cities Comcast systems part of spin-off
•Midwest Cable –newly created entity
–After closing will be renamed “GreatLand Connections”
•Midwest Cable will be publicly traded entity
•New Grantee = Comcast of Minnesota, LLC
•Financial review –challenging
–Given lack of operating history
А
Proposed Charter + Midwest
Cable (SpinCo)
Б
Ѝ
ЊЋΉЊЉΉЋЉЊЍ
Who Will Run Midwest Cable?
•Separate board of directors -owned
–33% by Charter Communications
–67% by Comcast Shareholders
•Midwest will initially have 9 board members
•Michael Willner
–President and CEO of Midwest
–40 year veteran
–Insight Communications
–No existing franchises under its control
–Much of executive team worked at Insight
•Midwest has no operating history
•Substantial operations handled by Charter
В
Structure After Merger
ComcastShareholdersCharterStockholders
ΛğƭƚŅƷŷĻƩĻĭƚƩķķğƷĻŅƚƩƷŷĻΛğƭƚŅźƒƒĻķźğƷĻƌǤƦƩźƚƩƷƚƷŷĻ
ƭƦźƓƚŅŅΜƷƩğƓƭğĭƷźƚƓƭΜ
Approximately%
Approximately%
NewCharter
Approximately67%
Approximately33%
Comcast
Charter
ΛźƓĭƌǒķźƓŭĭğƭŷķźƭƷƩźĬǒƷĻķ
MidwestCable
ŅƩƚƒhƦ/ƚğƓķƚǒƩƓƚƷĻƭ
źƭƭǒĻķƷƚ/ƚƒĭğƭƷΜ
OpCo
aźķǞĻƭƷ/ğĬƌĻ
ΛƚǞƓƭƷŷĻ
TWC
ƭǤƭƷĻƒƭͲğƭƭĻƷƭğƓķƌźğĬźƌźƷźĻƭ
aźķǞĻƭƷ/ğĬƌĻ
ƩĻƌğƷźƓŭƷƚƷŷĻ
ƭǤƭƷĻƒƭğƓķĭƩĻķźƷŅğĭźƌźƷźĻƭΜ
ЊЉ
Ў
ЊЋΉЊЉΉЋЉЊЍ
Timeline for Local Action
•City has right to review transfer of franchise
–Under franchise, state and federal law
–Approve/not approve
•Official request via FCC Form 394
–Received June 18, 2014
•120 days to issue local decision
–October 18, 2014 = initial deadline
–Comcast extended deadline -
–First to December 15 th
–New deadline is now January 15, 2015
•Legal, technical and financial qualifications
•Commission requested substantial info
ЊЊ
Local Operations
•Local field operational (technical) personnel
–Will be Midwest Cable employees
•Government affairs personnel
–Interacting with local franchising authorities
–Will be Midwest Cable employees
•Other operational services
–Will be provided by Charterpersonnel
ЊЋ
Џ
ЊЋΉЊЉΉЋЉЊЍ
Charter Services to Midwest
•Midwest will pay Charter 4.25% of revenues
–4.25% of all voice, video and data revenues
–Procurement and Programming Management Services
–Network Operations
–Engineering & IT
–Voice Operations
–Field Operations
–Customer Service
–Billing & Collections
–Marketing & Sales
–Administrative and Back office Services
–Other
ЊЌ
Impact on Services
•Subs keep Comcast telephone numbers
•Subs keep cable equipment
–At least for initial transition –perhaps longer/permanently
•Email
–Subs will have to transition away from comcast.net
–Likely to Charter’s email domain
•Billing
–Will transition to Midwest
–Online payments will require subscribers to contact bank
ЊЍ
А
ЊЋΉЊЉΉЋЉЊЍ
Financial Review
•Outlined in Report pp. 13-20
•Midwest’s long-term debt is estimated to be
–$7.8 billion
•Midwest’s initial debt leverage will be no
greater than 5.0x its 2014 EBITDA
•Earnings before interest, taxes, depreciation and amortization
•i.e. how much profit is made with present assets and operations on
the products sold, as well as providing a proxy for cash flow
–Consistent with some other cable operators
•Charter at 5.0x,
•Cablevision at 5.3x,
•Suddenlink at 5.7x and
•Mediacom at 5.3x).
ЊЎ
Resolution
•Approves transaction subject to:
–Written Acceptance by New Grantee
•Comcast of Minnesota, LLC
–Guaranty by GreatLand Connections Inc.
•New name for Midwest
–SD and HD (simulcast) capacity for each City’s PEG channel
–Verification that fiber and equipment to be provided “free of
charge” by New Grantee
–Customer service
•Quarterly meetings with New Grantee for 2 years
•Escalated complaint process maintained
–Reimbursement of all transfer costs
ЊЏ
Б
ЊЋΉЊЉΉЋЉЊЍ
Conclusion
•Commission to consider resolution
approving the transfer
•If Commission approves of resolution
–Commission staff will send Report and Resolution to member
cities
–Commission recommendation will be included
–Staff will be present for Council presentation and consideration
•If Commission does not approve resolution
–Commission should direct staff on next steps
ЊА
Questions?
Brian T. Grogan, Esq.
Moss & Barnett, A Professional Association
150 South Fifth Street, Suite 1200
Minneapolis, MN 55402
(612) 877-5340 phone / (612) 877-5031 facsimile
E-mail: Brian.Grogan@lawmoss.com
Web site: www.lawmoss.com
ЊБ
В