121514-SpMtg-CompleteAgenda-BOOKMARK SPECIAL CITY COUNCIL MEETING
RICHFIELD MUNICIPAL CENTER, COUNCIL CHAMBERS
DECEMBER 15, 2014
6:00 PM
Call to order
1. Council discussion - Farewell to outgoing Richfield City Council Member at-Large Suzanne M. Sandahl.
2. Continuation of the public hearing and consideration of a Resolution Approving the Transfer of the Richfield
Cable Franchise and Change of Control of the Grantee from Comcast to Midwest Cable, Inc.
Staff Report No. 256
Adjournment
Auxiliary aids for individuals with disabilities are available upon request. Requests must be made at least 96
hours in advance to the City Clerk at 612-861-9738.
AGENDA SECTION: Special Meeting Items
AGENDA ITEM# 2.
STAFF REPORT NO. 256
CITY COUNCIL MEETING
12/15/2014
REPORT PREPARED BY: Steven L. Devich
DEPARTMENT DIRECTOR REVIEW: SD
OTHER DEPARTMENT REVIEW: N/A
CITY MANAGER REVIEW: Steven L. Devich
ITEM FOR COUNCIL CONSIDERATION:
Continuation of the public hearing and consideration of a Resolution Approving the Transfer of the
Richfield Cable Franchise and Change of Control of the Grantee from Comcast to Midwest Cable, Inc.
EXECUTIVE SUMMARY:
On June 18, 2014 each of the five member cities of the Southwest Suburban Cable Commission ("SWSCC")
received an FCC Form 394 from Comcast requesting approval of a transfer of the cable system from Comcast
to Midwest Cable, Inc. ("Midwest"). Under FCC regulations, the member cities had 120 days to approve or
deny the proposed transfer. In response to that timeline, the City of Richfield opened a Public Hearing on the
transfer matter on September 23, 2014. However, because Comcast and the new proposed Grantee did not
have the required information available to consider the matter at that date, the public hearing was continued.
Since that time, the deadline for consideration by the member cities of the SWSCC was extended to January
15, 2015. In addition, the legal, technical and financial information regarding the proposed transfer and the
new Grantee was provided to Moss & Barnett, the legal counsel retained by the SWSCC to represent them in
this matter. Moss & Barnett attorney, Brian Grogan, submitted a detailed report regarding the proposed
transfer to the SWSCC ("Transfer Report") and subsequently the SWSCC unanimously passed a motion
approving the transfer and recommended approval of the transfer by its individual member cities.
Subscriber Impact
Richfield 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
be "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.
The SWSCC 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.
This evening the City Council must continue the public hearing, take testimony, close the hearing and consider
the resolution for approval. To that end, Mr. Grogan will make a comprehensive presentation to the City
Council describing the essential issues of consideration in this matter and stand for any questions of the
Council or the public.
RECOMMENDED ACTION:
Continue and close the public hearing and by motion: Adopt the Resolution Approving the Transfer of
the Richfield Cable Franchise and Change of Control of the Grantee from Comcast to Midwest Cable,
Inc.
BASIS OF RECOMMENDATION:
A. HISTORICAL CONTEXT:
See attached Memorandum from Moss and Barnett.
B. POLICIES (resolutions, ordinances, regulations, statutes, exc):
• 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.
c. CRITICAL TIMING ISSUES:
• The action on the requested transfer must be completed on or before January 15, 2015.
D. FINANCIAL IMPACT:
• The current 2012 Franchise provides a term of 10 years. Midwest Cable will be responsible for all existing
franchise agreement provisions if the proposed transfer is approved.
• The costs associated with the transfer of franchise will be reimbursed to the SWSCC by the cable company.
• There are no other specific costs to the City associated with this transfer that are known at this time.
E. LEGAL CONSIDERATION:
• Federal law and the provisions of the current Franchise Agreement between the City and Comcast regulate the
process that must be followed in this matter.
• Brian Grogan, Moss&Barnett has reviewed the transfer from a legal perspective and believes that it satisfies
that criteria.
ALTERNATIVE RECOMMENDATION(S):
None
PRINCIPAL PARTIES EXPECTED AT MEETING:
Brian Grogan, Moss & Barnett
ATTACHMENTS:
Description Type
D Resolution Resolution Letter
1) Transfer Report Backup Material
D Moss&Barnett Memo Backup Material
1) SWSCC Powerpoint presentation Presentation
RESOLUTION NO.
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
Richfield, 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 Richfield, 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.
Approved by the City of Richfield, Minnesota this day of December, 2014.
ATTEST: CITY OF RICHFIELD, 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 Richfield, 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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Moss & Barnett
REPORT
Regarding the Proposed Transfer of Control of the Cable
Franchise and Cable System from Comcast to Midwest Cable
(GreatLand Connections Inc.)
November 26, 2014
Submitted by:
Brian T. Grogan, Esq.
Yuri B. Berndt, Esq.
150 South Fifth Street, Suite 1200
Minneapolis, MN 55402
(P) 612-877-5000
(F) 612-877-5999
www.lawmoss.com
INTRODUCTION
This report has been provided by Moss & Barnett, a Professional Association, for the purpose of
evaluating a request from Comcast of Arkansas/Florida/Louisiana/Minnesota/ Mississippi/
Tennessee, Inc. ("Grantee"), the current holder of the Cable Franchise ("Franchise") in the
member cities of the Southwest Suburban Cable Commission ("Commission"), to approve a
proposed transfer of control ("Transfer") of the Franchise to Midwest Cable, Inc. (hereinafter
"Midwest Cable" or"Midwest"). The Grantee currently owns, operates and maintains a cable
television system ("System") in each of the Commission's member cities pursuant to the terms
of the Franchise. The Commission's member cities are Edina, Eden Prairie, Hopkins,
Minnetonka and Richfield (hereinafter collectively referred to as the "City").
On February 12, 2014, Comcast Corporation ("Comcast") and Time Warner Cable Inc. ("TWC")
entered into an Agreement and Plan of Merger whereby Comcast would acquire the cable
systems and franchises held by TWC among other assets. 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 (the
"Transaction").
Note: See pages 3, 4 and 5 of this Report for diagrams of the Transaction.'
What is happening to the Twin Cities Comcast cable systems?
Comcast's proposed acquisition of TWC will (if approved) result in the total combined number of
cable subscribers to be controlled by Comcast to exceed 30 million nationwide. In an effort to
reduce that number and make the Transaction more acceptable to federal regulators, Comcast
voluntarily agreed to divest itself of 3.9 million cable subscribers nationwide. Part of this
proposed divestiture was accomplished with the system swaps between Comcast and Charter
that results in Charter acquiring an additional 1.4 million cable subscribers. The remaining 2.5
cable subscribers to be divested by Comcast will be controlled by a new publicly traded entity,
Midwest Cable. In Minnesota, Comcast's only cable subscribers exist in the Twin Cities market
(and small portions of western Wisconsin). As a result, the Twin Cities market was selected,
along with other markets in Michigan, Illinois, Indiana and some southern states, to be included
in the divestiture transaction.
What this means is that Comcast will be leaving Minnesota and will no longer own the cable
systems serving the Twin Cities or the City. Rather, the System will be owned by Midwest
Cable. Because Midwest Cable is newly created, it will require third party assistance to address
many operating issues such as programming agreements, customer service, billing, technical
support and related issues. Charter will be assisting Midwest Cable with many of these issues
via a "services agreement" that will be more fully explained in this Report.
' All diagrams are derived from Midwest Cable Form S-1 filed with the Securities and Exchange Commission on
October 31, 2014.
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What will be the name of the new cable operator serving the City?
In initial communications with the City, Comcast referred to the proposed new cable operator
entity as SpinCo. Shortly thereafter the name was changed to Midwest Cable. Midwest Cable
remains the name as of the date of this Report, but following close of the Transaction, the name
will change to GreatLand Connections Inc. ("GreatLand"). For purposes of this report all
references will be to Midwest Cable.
The Transaction initially provides for Comcast's creation of Midwest Cable and Comcast's
contribution of systems (and related business assets and holdings) serving approximately 2.5
million existing Comcast subscribers to Midwest Cable. Midwest Cable is currently a wholly
owned subsidiary of Comcast. Following the contribution, Comcast will spin-off the Midwest
Cable stock to its public shareholders and Midwest Cable will become an independent, publicly
traded corporation and its name will change to GreatLand. Approximately two-thirds (2/3) of the
equity and voting shares of Midwest Cable will be held by Comcast shareholders and one-third
of the equity and voting shares will be owned by Charter. See page 5 of this Report for a
diagram of the transaction.
Timing for Action by City
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"). Federal, state and local law, including the terms of the Franchise, provide the
City with authority to consider the Application. The time period for such a review is typically one
hundred twenty (120) days from the date of receipt of the Application, in this case on or before
October 15, 2014. 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 additional information concerning the qualifications of Midwest Cable which was
provided to the City on September 30, 2014.
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. The current City deadline for
action on the Application is January 15, 2015.
What can the City consider?
Pursuant to the City's Franchise, this proposed Transfer is prohibited without the written consent
of the City. Federal, state and local law provides the City with a right to examine the legal,
technical and financial qualifications of the proposed New Grantee and Midwest Cable.
Following review of the Application additional questions were sent on the City's behalf to
Comcast seeking supplemental information regarding the qualifications of New Grantee and
Midwest Cable. The Transaction is complicated to describe because certain operational
responsibilities will be contracted for by Midwest Cable. Both Comcast and Charter will provide
certain transition services and ongoing services to Midwest Cable which will be more fully
described herein.
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Structure Following the Comcast/TWC Merger
but Before the Transactions
Comcast Shareholders Charter Stockholders
—7—
Comcast Charter
TWC New Charter
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Structure Following the Spin-Off and the Charter Reorganization
but Before the Midwest Cable Merger
Comcast Shareholders Charter Stockholders
(as of the record date for the (as of immediately prior to the
spin-off) transactions)
F _F
Comcast New Charter
(including cash distributed from Midwest Cable
OpCo and our notes issued to L
Comcast)
Charter
OpCo
Merger Sub Charter
(owns the Midwest Cable
TWC systems,assets and liabilities
relating to the Midwest Cable
systems and credit facilities)
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Structure Following the Transactions
Comcast Shareholders Charter Stockholders
(as of the record date for the spin- (as of immediately prior to the
off) transactions)
Approximately %
Approximately
Approximately 67% New Charter
Approximately 33%
Comcast Charter
(including cash distributed Midwest Cable
from OpCo and our notes
issued to Comcast)
OpCO
(owns the Midwest Cable
TWC systems,assets and liabilities
relating to the Midwest Cable
Systems and credit facilities)
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APPLICABLE LAW
In addition to the Franchise requirements which are not specially set forth herein, the following
provisions of Federal law and State law govern the actions of the City in acting on the request
for approval of the Transaction.
Federal Law
The Cable Communications Policy Act of 1984, as amended by the Cable Consumer
Protection and Competition Act of 1992 and the Telecommunications Act of 1996 ("Cable
Act"), provides at Section 617 (47 U.S.C. § 537):
Sales of Cable Systems. A franchising authority shall, if the franchise requires
franchising authority approval of a sale or transfer, have 120 days to act upon
any request for approval of such sale or transfer that contains or is accompanied
by such information as is required in accordance with Commission regulations
and by the franchising authority. If the franchising authority fails to render a final
decision on the request within 120 days, such request shall be deemed granted
unless the requesting party and the franchising authority agree to an extension of
time.
The Cable Act also provides at Section 613(d) (47 U.S.C. § 533(d)) as follows:
(d) Regulation of ownership by States or franchising authorities. Any State or
franchising authority may not prohibit the ownership or control of a cable system
by any person because of such person's ownership or control of any other media
of mass communications or other media interests. Nothing in this section shall
be construed to prevent any State or franchising authority from prohibiting the
ownership or control of a cable system in a jurisdiction by any person (1)
because of such person's ownership or control of any other cable system in such
jurisdiction, or(2) in circumstances in which the State or franchising authority
determines that the acquisition of such a cable system may eliminate or reduce
competition in the delivery of cable service in such jurisdiction.
Further, the Federal Communications Commission ("FCC") has promulgated regulations
governing the sale of cable systems. Section 76.502 of the FCC's regulations (47 C.F.R. §
76.502) provides:
Time Limits Applicable to Franchise Authority Consideration of Transfer
Applications.
(a) A franchise authority shall have 120 days from the date of submission of a
completed FCC Form 394, together with all exhibits, and any additional
information required by the terms of the franchise agreement or applicable state
or local law to act upon an application to sell, assign, or otherwise transfer
controlling ownership of a cable system.
(b) A franchise authority that questions the accuracy of the information provided
under paragraph (a) must notify the cable operator within 30 days of the filing of
such information, or such information shall be deemed accepted, unless the
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cable operator has failed to provide any additional information reasonably
requested by the franchise authority within 10 days of such request.
(c) If the franchise authority fails to act upon such transfer request within 120 days,
such request shall be deemed granted unless the franchise authority and the
requesting party otherwise agree to an extension of time.
State Law
Minnesota Statutes Section 238.083 provides:
Sale or Transfer of Franchise.
Subd. 1. Fundamental corporate change defined. For purposes of this
section, "fundamental corporate change"means the sale or transfer of a majority
of a corporation's assets; merger, including a parent and its subsidiary
corporation; consolidation; or creation of a subsidiary corporation.
Subd. 2. Written approval of franchising authority. A sale or transfer of a
franchise, including a sale or transfer by means of a fundamental corporate
change, requires the written approval of the franchising authority. The parties to
the sale or transfer of a franchise shall make a written request to the franchising
authority for its approval of the sale or transfer.
Subd. 3. Repealed, 2004 c 261 art 7 s 29
Subd. 4. Approval or denial of transfer request. The franchising authority
shall approve or deny in writing the sale or transfer request. The approval must
not be unreasonably withheld.
Subd. 5. Repealed, 2004 c 261 art 7 s 29
Subd. 6. Transfer of stock; controlling interest defined. Sale or transfer of
stock in a corporation so as to create a new controlling interest in a cable
communication system is subject to the requirements of this section.
The term "controlling interest"as used herein is not limited to majority stock
ownership, but includes actual working control in whatever manner exercised.
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TECHNICAL REVIEW
The technical qualification standard relates to the technical expertise and experience of New
Grantee and Midwest Cable to own, operate and maintain the System in the City following the
closing of the Transaction. In this case, since Midwest Cable will become the ultimate parent of
New Grantee, our focus is on the technical qualifications of Midwest Cable. In such a review,
the standard of review is that the City's consent shall not be "unreasonably withheld." Because
Charter will be providing considerable support to Midwest Cable, we have also outlined below
certain qualifications of Charter and have attempted to clarify which entity will provide services
in the City.
Background Qualifications of Midwest Cable
Midwest Cable is a newly created entity. Midwest Cable has no operating history that the City
can review nor does it have any existing franchises under its control. Midwest Cable will initially
have nine board members. Midwest Cable's Executive Management Team will include the
following cable and communications industry executives: 1) Michael Willner, President and
CEO; 2) Leonard Baxter, Vice President, Chief Administrator Officer; 3) Matt Siegel, Executive
Vice President and Chief Financial Officer; and 4) Keith Hall, Executive Vice President,
Corporate Affairs. Mr. Willner, a forty year cable veteran, is the former President and CEO of
Insight Communications. Many members of the Midwest Cable executive team are former
Insight Communications executives that worked under Mr. Willner. Midwest Cable will employ
regional managers and for certain cable systems, local area managers, who will responsible for
overseeing the local cable system operations of Midwest Cable.
Responses to Supplemental Information
Comcast and Midwest Cable provided an identical letter dated September 30, 2014 to all Twin
City area jurisdictions (through legal counsels for each of the jurisdictions) rather providing a
response to each of the specific questions raised by the Commission and City. Below is a
summary of the information provided in the Comcast/ Midwest Cable correspondence dated
September 30, 2014.
1. Will Midwest Cable have local Twin City employees?
All local system field operational (technical) personnel will be Midwest Cable employees.
All government affairs personnel interacting with local franchising authorities will also be
Midwest Cable employees. Other operational services will be provided by Charter
personnel as described below.
2. What transition services will Comcast provide?
During the first year following the close of the Transaction, Comcast will provide the
following "transition services" to Midwest Cable. Some of these services will transition to
Midwest Cable more quickly than others.
a. Facilities and Asset-Based: Network operating center("NOU)for fiber and
outage monitoring; national-route fiber leases; Internet Protocol TV ("IPTV")
infrastructure and support; call centers and specialized customer care activities
(e.g., home security monitoring).
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b. Software Platforms: Billing systems; customer websites and service portals;
provisioning and telephony platforms; customer premise equipment support
systems; voicemail and email platforms; network support tools; data warehouse;
human resources and accounting systems.
C. Marketing and Sales: Transition from Comcast/Xfinity branding to the Midwest
Cable and Charter co-branded "Spectrum" product offering — including all of the
associated market and employee-facing markings, as well as national sales
channels for residential, commercial and advertising sales.
d. Customer-Facing Transition Services: Call center support; billing systems
support; provisioning of video; voice and data services; voice operations/call
completion; X1 platform support; customer identity management; and
email/voicemail continuity support.
3. What services will Charter provide in the Twin Cities?
For an initial three (3) year term (with optional one year extensions) Midwest Cable will
contract with Charter to provide certain marketing and operational services. Midwest
Cable will pay Charter a fee of 4.25 percent of Midwest Cable's total revenues (voice,
video and data revenues) in return for these services.
Charter background - Charter currently operates cable systems throughout Minnesota in
such cities as Duluth, St. Cloud, Marshall, Apple Valley, Lakeville, Rochester, Mankato,
Winona and many others. Charter provides service to more than 6.1 million customers
in 29 states in which it currently operates. Charter is a Fortune 500 company and
employs approximately 23,000 people.
a. Procurement and Programming Management Services. Charter will provide
programming management services to Midwest Cable including negotiating and
entering into video programming agreements.
Charter will provide procurement management services to Midwest Cable.
Examples of such goods and services are: product hardware, software licensing
and employee cellular service.
b. Network Operations. Charter will provide Midwest Cable: (i) telecommunications
services that previously depended on Comcast in a shared service model
including: network connectivity for all services including voice, video and data,
Video On Demand, CPE software and provisioning management, network
security and interface with law enforcement, authentication of services and
network monitoring and outage detection.
C. Engineering & IT. Charter will provide Midwest Cable the Corporate Engineering
services previously provided by Comcast including: architectural design
standards, product technical roadmaps and standards and technical roadmaps
and standards.
Charter will provide Midwest Cable IT services including: (i) software for back
office functions including managing customer transactions and provisioning of
services; (ii) management information services for accounting, billing, activity
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analysis, labor management, budgeting and financial analysis; and (iii)
management of data centers.
d. Voice Operations. Charter will provide origination services to Midwest Cable
including processing phone subscriber orders for phone installations at the
subscriber's home or business. These services include: order fulfillment and
provisioning and local number management and portability.
e. Field Operations. Charter will support Midwest Cable under by providing field
operations services including: dispatch, plant database software systems,
predictive network failure software and maintenance prioritization, technician
activity and productivity reporting, warehouse standards and CPE handling
standards, tools, requirements and standards for technician communications,
plant design and construction standards and fleet management.
f. Customer Service. Charter will support Midwest Cable by providing customer
care services directly or through its vendors. These services include call center
services for call answering, monitoring and dispositioning related to inbound
sales, billing, repair, and retention for all products and services sold by Midwest
Cable, including video, voice and data, online chat for sales, service and billing,
online customer care portals for self-help and service and customer identity
management.
g. Billing & Collections. Charter will provide billing and collections services. These
services include: customer billing and billing system management, collection of
customer receivables and cash management and customer disconnect support.
h. Product. Charter will provide Midwest Cable with: (i) customer facing product
development definitions/standards/software and planning for all business and
consumer products; (ii) change planning and project management services; and
(iii) website hosting, video content management and web mail hosting. Any
customer facing products bearing a Charter brand name shall be co-branded with
Midwest Cable's brand name in such a manner that it is clear to the consumer of
such products that Midwest Cable is the party providing services to the
consumer.
i. Marketing & Sales. Charter will support Midwest Cable by providing: (i)
marketing services and database support to enable mass, direct and online
marketing activities; (ii) analysis of sales channel(s) performance; and (iii)
development and all customer and non-customer facing messaging.
Charter will support Midwest Cable by providing: (i) program design and
management tools that maximize economic sales to nonsubscribers by door-to-
door sales representatives; (ii) sales channel reporting; and (iii) program design
for maximizing growth in MDU environment.
j. Administrative and Back office Services. As requested by Midwest Cable,
Midwest Cable may leverage administrative services from Charter, including
leveraging the associated platforms and practices, in areas including but not
limited to accounts payable, general ledger, database systems, and payroll
administration.
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4. Will Xfinity cable services remain available?
Cable services will eventually be transitioned from Xfinity branding to Charter's
"Spectrum" brand. Midwest Cable customer invoices will identify products and services
as being "Spectrum by Midwest Cable."Z The products and services may also be co-
branded as "Midwest Cable and Charter," in certain markets.
5. Customer E-Mail Transition.
Post-closing, customers will continue to use their Comcast email account until they
migrate to a Midwest Cable email account. Comcast customers will not indefinitely
retain their existing "@comcast.net" email address after migrating to the Midwest Cable
service, as Comcast owns that domain. However, emails sent to the customer's former
"@comcast.net" email address will be automatically forwarded to the customer's new
Midwest Cable email address for an "ample period of time" that is mutually agreeable to
both companies. It is not clear if the email domain will be owned by Charter or Midwest
Cable.
6. Phone Number Continuity.
The Transaction will not require any change in customer phone numbers. Existing
Comcast telephone customers will be able to keep their current phone numbers
permanently.
7. Customer Equipment.
Customers will be able to continue to use their current premises equipment after the
Transaction closes. Midwest Cable will rely initially on Comcast for transition services to
support the X1 platform. Midwest Cable ultimately will deploy the Spectrum product suite
developed by Charter, which will include a cloud-based user interface similar to the one
X1 provides. The Spectrum guide is designed to improve significantly television search
and discovery functionality. Of critical importance here, the Spectrum product is
designed to accommodate current subscriber equipment (including deployed X1 boxes).
Accordingly, Customers who already have X1 equipment should be able to continue
using that equipment even after Midwest Cable transitions to the Spectrum offering.
After the transition, Midwest Cable video customers will also have authenticated access
to programming at no extra charge via the Spectrum TV App—which is compatible with
the Apple iPad, iPhone, and iPod Touch running iOS6 or higher; all Amazon KindleFire
devices (excep for the first generation KindleFire); and all tablets and phones running
Android 4.0 and above.
8. Customer Billing.
Customers will begin to see bills (at the same time of the month)from Midwest Cable
and not Comcast. Approximately 15% of the customers pay online, directly from their
bank (whether via recurring payments or one-time). These customers are the only
customers that will be required to do anything to adjust their billing arrangements as they
2 Recall that Midwest Cable's name will change to GreatLand Connections Inc. Presumably, the branding will be tied
to the name GreatLand not Midwest Cable.
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will be required to update their on-line banking information to direct payments to Midwest
Cable rather than to Comcast. This would not occur for several months after close, and
Midwest Cable will notify customers of the change —targeting customers who pay in this
fashion with messaging.
9. Continuation of an Internet Access Support Program for Low Income Households.
Midwest Cable will continue to offer Internet Essentials and, over time, may make
changes to properly serve this important constituency.
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FINANCIAL REVIEW
I. Scope of Review
Comcast Corporation, a Pennsylvania corporation ("Comcast"), is the ultimate parent
company of the current holder of the Franchise granted by the City. Under the Franchise,
Comcast, through its subsidiaries, operates the System that provides cable services and other
communication services in the City. Comcast has requested the City's approval of the proposed
Transfer of the System to Midwest Cable, Inc. (which ultimately will be known as GreatLand
Connections Inc.), a Delaware corporation ("Midwest"), an entity initially wholly owned by
Comcast and subsequently spun off to Comcast's existing shareholders.3 At the request of the
City, Moss & Barnett, PA has reviewed selected financial information that was provided by
Comcast and Midwest or publicly available to assess the financial qualifications of Midwest, as a
publicly traded entity, following completion of the proposed transfer of the System.
The financial information that was provided or available through other public sources and
to which our review has been limited, consists solely of the following financial information
(hereinafter referred to collectively as the "Financial Statements"):
1. FCC Form 394 "Application for Franchise Authority Consent to Assignment or
Transfer of Control of Cable Television Franchise" dated June 17, 2014, provided by
Comcast Corporation (the "Application"), along with such other exhibits as provided
therewith;
2. Form 8-K for Comcast Corporation filed with the Securities and Exchange
Commission on April 28, 2014 that includes the Comcast/Charter Transaction
Agreement between Comcast Corporation and Charter Communications, Inc. dated April
25, 2014 (the "Transaction Agreement");
3. Form 10-K for Comcast Corporation filed with the Securities and Exchange
Commission on February 12, 2014, for the fiscal year ended December 31, 2013;
4. Form 10-Q for Comcast Corporation filed with the Securities and Exchange
Commission on October 23, 2014 for the fiscal quarter and nine-month period ended
September 30, 2014;
5. Form 8-K for Comcast Corporation filed with the Securities and Exchange
Commission on October 29, 2014 that includes pro forma financial statements for the
Comcast Cable Systems to be Contributed to Midwest Cable, Inc.;
6. Form S-1 for Midwest Cable, Inc. filed with the Securities and Exchange
Commission on October 31, 2014;
7. The audited financial statements of Comcast Corporation and subsidiaries as of
December 31, 2013 and 2012, including Consolidated Balance Sheets as of
December 31, 2013 and 2012, Consolidated Statements of Income, Comprehensive
Income, Cash Flows and Change in Equity for the years ended December 31, 2013,
3 Form S-1 for Midwest Cable, Inc.filed with the Securities and Exchange Commission on October 31, 2014 ("Form
S-1")at p.4.
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2012 and 2011, and the Independent Auditors' Report of Deloitte &Touche LLP dated
February 12, 2014;
8. The draft Charter Services Agreement by and between Midwest Cable, Inc. and
Charter Communications Operating, LLC.
9. The draft Transition Services Agreement by and between Midwest Cable, Inc.
and Comcast Corporation; and
10. Such other information as we requested and that was provided by Comcast
relating to the transfer.
Our procedure is limited to providing a summary of our analysis of the Financial
Statements in order to facilitate the City's assessment of the financial capabilities of Midwest to
acquire and operate the System in the City.
II. Overview of Transaction
As a result of the other transactions as discussed in Section III in this report and
pursuant to the Transaction Agreement, Comcast has agreed to divest itself from certain assets,
which includes the System, pursuant to a spin-off transaction.4 The transaction initially provides
for Comcast's creation of a new corporate subsidiary (Midwest) and its contribution of systems
(and related business assets and holdings) serving approximately 2.5 million existing Comcast
subscribers to Midwest.5 These systems are located in the Midwestern and Southeastern United
States.6 Midwest is currently a wholly owned subsidiary of Comcast.'
Following the contribution, Comcast will spin-off the Midwest stock to its public
shareholders and Midwest will become a publicly traded corporation.8 Prior to the spin-off of
Midwest, Midwest will incur debt in an amount equal to five times the stand-alone Midwest
assets' earnings before interest, taxes, depreciation and amortization (EBITDA) and distribute
the debt proceeds to or exchange those debts with Comcast.9 Midwest estimates the amount of
this initial debt to be approximately $7.8 billion.10 This transaction is subject to many conditions
including federal regulatory approval, performance covenants, financing, favorable tax opinions
and other requirements of the parties.11 In addition, Comcast and Midwest will enter into a
Transition Services Agreement pursuant to which Comcast will continue to provide certain
services to Midwest for a period of 12 to 18 months pursuant to the applicable statements of
work.12
After the completion of the above transactions, CCH 1, LLC ("New Charter"), a wholly
owned subsidiary of Charter Communications, Inc. will acquire an approximately thirty-three
4 Id. at p. 1.
5 Id.
6 Form 8-K for Comcast Corporation filed with the Securities and Exchange Commission on April 28, 2014 at pp. 1-3
and Form S-1 at p. 1.
7 Form S-1 at p. 1.
8 Id. at p. 2.
9 Id. at p. 1.
10 Id.
1 1 Id. at p. 2.
12 Draft Transition Services Agreement by and between Midwest Cable Inc.and Comcast Corporation.
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percent (33%) interest in Midwest.13 The acquisition is structured as a merger of New Charter
into Midwest.14 As consideration for this merger, New Charter will issue new stock to the
Midwest shareholders which will represent about ten percent (10%) of Charter's issued and
outstanding stock after the merger transaction.15 In conjunction with this transaction, Charter
will enter into a Charter Services Agreement with Midwest in which Charter will provide Midwest
with certain services, including, but not limited to corporate services, network operations,
engineering and IT, voice operations, field operations support services, customer services,
billing and collections, product services, marketing services, sales, business intelligence and
intellectual property licensing.16 Charter will receive compensation for out-of-pocket costs
related to these services plus a services fee equal to 4.25% of Midwest's gross revenues.17 The
Charter Services Agreement has an initial three (3) year term with automatic one (1) year
renewals.18
As a result of the transactions described above, Midwest will become a publicly traded
company owned approximately two-thirds by Comcast's existing shareholders and one-third by
Charter's existing shareholders.19 The current Comcast shareholders will receive shares of
Charter's publicly traded stock and Midwest's publicly traded stock as part of the transactions.
The transactions are expected to close in early 2015.20
III Overview of Related Transactions
The spin-off transaction is part of a larger group of transactions that involve Charter
Communications, Inc., a Delaware corporation ("Charter"), and Time Warner Cable Inc., a
Delaware corporation ("TWC"). The other transactions include:21
1. TWC's merger into Tango Acquisition Sub, Inc., a wholly owned subsidiary of
Comcast;
2. Charter's purchase from Comcast of systems currently served by TWC that
represent approximately 1.5 million video subscribers;
3. Charter's exchange that includes its transfer to Comcast of certain cable systems
that represent approximately 1.6 million video subscribers in exchange for TWC systems
that represent approximately 1.5 million video subscribers; and Charter's internal
reorganization that results in the creation of New Charter.
13 Form 10-Q for Comcast Corporation filed with the Securities and Exchange Commission on October 23, 2014 for
the fiscal quarter and nine-month period ended September 30, 2014 ("Form 10-Q")at p. 30.
14 Id.
15 Id.
16 Draft Charter Services Agreement by and between Midwest Cable, Inc. and Charter Communications Operating,
LLC and Form S-1 at p. 70.
17 Id.
1s Id.
19 Form S-1 at p. 2.
20 Form 10-Q at p. 29.
21 Comcast/Charter Transaction Agreement between Comcast Corporation and Charter Communications, Inc.dated
April 25, 2014.
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IV. Overview of Midwest
Midwest is a newly formed corporation that will provide full service communications and
cable services, along with other video programming, Internet services, and voice services to
residential and commercial customers in certain markets in the United States.22 Midwest was
formed in May of 2014 as a limited liability company and converted to a corporation in
September of 2014.23 After the contribution and spin-off, Midwest will be the fifth largest cable
operator in the United States.24 After the transaction, Midwest's cable system will pass
approximately 6.3 million potential customers and serve approximately 2.5 million residential
and commercial cable customers.25 Approximately sixty-five percent (65%) of Midwest's
customers will be located in the Detroit, Michigan; St. Paul/Minneapolis, Minnesota; and
Indianapolis, Indiana markets.26 As of the current time, an estimate of the number of direct
employees employed by Midwest is unstated and most Midwest services will be provided by
Comcast or Charter through the separate service agreements.27 Midwest's management has an
extensive background in the cable industry.28
Cable providers and telecommunication companies operate in a competitive
environment and the financial performance of cable television operators, like Midwest and other
cable operators, are subject to many factors, including, but not limited to, the general business
conditions, programing costs, incumbent operators, digital broadcast satellite service,
technology advancements, burdensome service contracts, and customer preferences, as well
as competition from multiple sources, which provide and distribute programming, information,
news, entertainment and other telecommunication services.29 Midwest has no operating history
as a stand-alone company and is dependent upon Comcast and Charter for all of its essential
services and operations.30 In addition, Midwest, as a result of the transaction, will be a highly
leveraged company, which may reduce its ability to withstand prolonged adverse business
conditions and there is no assurance that Midwest will be able to obtain financing in the future to
cover its cash flow needs.31 The cable business is inherently capital intensive, requiring capital
for the construction and maintenance of its communications systems. We specifically requested
information on Midwest's capital expenditures budget, but Comcast declined to provide that
information to us.32 Each of these factors could have a significant financial impact on Midwest
and its ability to continue to operate the System.
V. Findings
We have analyzed the historical financial statements just for the assets to be contributed
by Comcast to Midwest and publicly filed information, along with its Services Agreement with
Charter and Transition Services Agreement with Comcast. Midwest declined to provide us with
22 Form S-1 at p. 50.
23 Id.
24 FCC Form 394"Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable
Television Franchise"dated June 17, 2014, provided by Comcast Corporation (the"Application"),—Cover letter dated
June 17, 2014.
25 Form S-1 at p. 50.
26 Id. at pp. 50-51.
27 Id. at p. 63.
28 Application—Exhibit 7.
29 Form S-1 at pp. 8-17.
30 Id. at p. 13.
31 Id. at pp. 17-19.
32 Correspondence to author from Klayton F. Fennell,Vice President, Government Affairs, Comcast Corporation.
dated July 28, 2014 at p. 15.
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projected statements of cash flow and income and a balance sheet for its future operations and
further stated that "Comcast has not and will not provide forward looking analyses related to
Midwest Cable...,,.33 Furthermore, other than the footnote disclosures in the historical financial
statements which were minimal, we were not provided with the detailed information on how
Comcast determined its revenue and expense allocations and its assumptions used to prepare
the Midwest financial statements. Deloitte &Touche LLP, one of the biggest accounting firms in
the United States, provided an Independent Auditors' Report dated October 24, 2014 on the
Comcast Cable Systems to be Contributed to Midwest Cable, Inc. and stated the Midwest
financial statements fairly present, in all material respects, the financial condition of the Comcast
assets to be contributed to Midwest.34 The Auditors' Report states "The accompanying
combined financial statement reflect the assets, liabilities, revenue and expenses directly
attributable to the Company [Midwest], as well as allocations deemed reasonable by Comcast
Corporation management, and do not necessarily reflect the combined financial position, result
of operations, and cash flows that would have resulted had the Company [Midwest]been
operated as a stand-alone entity during the period presented."ss
These historical audited financial statements do not include transaction costs and
ongoing additional costs and synergies of the new Midwest operation, including the new debt
and various new service fees for services provided by Charter and Comcast. Midwest's
management has provided financial statement, as adjusted for some of these other costs and
expenses that were not recognized by Comcast historically.36 These financial statements do not
include all potential adjustment items as noted in Midwest's public filings.37
As such, we are reporting our Findings hereunder based upon Comcast's historical
information as adjusted, for the assets and systems contributed to Midwest. Overall, from a
financial point-of-view, the information provided below shows that Midwest will be highly
leveraged and have significant third party costs and obligations.
1. Analysis of Financial Statements. Federal law and FCC regulations provide
franchising authorities, such as the City, with limited guidance concerning the evaluation
of the financial qualifications of an applicant for a cable franchise. In evaluating the
financial capabilities of a cable operator, we believe it is appropriate to consider the
performance of an applicant based on the applicant's historical performance plus its
projected or budgeted financial information along with its financial capabilities
(financing). With a new company, historical information is not available. However in this
case, the pro forma financial statements with respect to the assets contributed by
Comcast to Midwest have been prepared by Comcast based upon its management's
assumptions. We have not independently verified the Comcast management's
allocations and assumptions and are relying on the publicly disclosed information as
provided by Midwest and Comcast. We believe a general review of the Midwest pro
forma financial information may provide some insight into the general financial
33 Id.
34 Form 8-K for Comcast Corporation filed with the Securities and Exchange Commission on October 29, 2014 that
includes pro forma financial statements for the Comcast Cable Systems to be Contributed to Midwest Cable, Inc.
"Form 8-K")at p. F-1.
5 Id.
36 Form S-1 at pp. 31-36.
37 Id. at p. 36.
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operations of Midwest with respect to the Application, but we note that there are many
unanswered questions regarding Midwest's operations going forward.38
As noted above, Midwest's operations include both cable television video services and
non-cable television services. According to Midwest's financial statements, Midwest's
residential video service compromised approximately forty-eight percent (48%) to fifty percent
(50%) of its revenue in 2013 and 2014.39 The Midwest financial information discussed below
includes all of the Midwest operations, including the non-cable television video services. We
have analyzed Midwest's pro forma financial statements, as adjusted as noted below, as of
June 30, 2014 and historical financial statements as of December 31, 2013 and 2012 in
providing the information in this Section. As described below, these financial statements do not
reflect the current fair value of Midwest's assets and liabilities, but rather the assets and
liabilities are presented based on Comcast's historical cost as determined by Comcast's
management.ao
2. Specific Financial Statement Data and Analysis.
a. Assets. The Comcast assets transferred to Midwest had (i) current
assets of$168 million as adjusted, $173 million, and $152 million; (ii) working
capital of a negative $211 million as adjusted, a negative $206 million, and a
negative $196 million; and (iii) total assets of$9,043 million as adjusted, $8,999
million, and $8,992 million as of June 30, 2014 and December 31, 2013 and
2012, respectively.41 Working capital, which is the excess of current assets over
current liabilities, is a short-term analytical tool used to assess the ability of a
particular entity to meet its current financial obligations in the ordinary course of
business. The trend shows a slight increase in the negative working capital from
December 31, 2012 to June 30, 2014, and suggests that Midwest's cash flow
may be unable to meet is current obligations. Midwest's current ratio (current
assets divided by current liabilities) as of June 30, 2014, of 0.44/1 is well below a
generally recognized standard of 1:1 for a sustainable business operation.42
Approximately seventy-five percent (75%) of Midwest's assets are comprised of
its intangible Franchise Rights and Goodwill.4' According to Comcast, the current
fair market values of Midwest's net assets is considerably in excess of the
historical financial information.44
b. Liabilities and Net Equity. Midwest's pro forma financial statements
show (i) current liabilities of$379 million as adjusted, $379 million and $348
million; and (ii) deferred taxes of$2,836 million, $2,842 million and $2,835 million
as of June 30, 2014 and December 31, 2013 and 2012, respectively.45 Midwest's
long-term debt is estimated to be $7.8 billion which will have a significant impact
38 Correspondence to author from Klayton F. Fennell,Vice President, Government Affairs, Comcast Corporation.
dated July 28, 2014.
39 Form S-1 at p.44.
41 Id. at p.31.
41 Form 8-K at p. F-2 of the December 31, 2013 Financial Statements and Form S-1 at p. 32.
42 Form S-1 at p. 32.
43 Id.
44 Id.
45 Form 8-K at p. F-2 of the December 31, 2013 Financial Statements, at p. F- 1 of the June 30, 2014 Financial
Statements and Form S-1 at p. 32.
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on Midwest's balance sheet.46 The specific terms of the new indebtedness have
not been disclosed and are unknown; however Midwest has used an interest rate
of five percent (5%) on its adjusted pro forma financial statements.47 This
additional debt will require Midwest to generate additional cash flow, including
through the operations and its service arrangement with Charter, to fund its debt
service. Midwest's initial debt leverage will be no greater than 5.Ox its 2014
EBITDA, which is consistent with some other cable operators (Charter at 5.0x,
Cablevision at 5.3x, Suddenlink at 5.7x and Mediacom at 5.3x).48 In order to
close these transactions, Midwest and the other parties will be required to obtain
certain levels of financing, which if not received would terminate the above
described transactions.
C. Income and Expense. Midwest's pro forma income statements, as
adjusted report (i) revenue of$2,299 million and $4,470 million; (ii) operating
expenses of$1,839 million and $3,618 million; and (iii) operating income of$460
million and $852 million for the six-month period ending June 30, 2014 and the
year ending December 31, 2013, respectively.49 Midwest is reporting net income
in its pro forma financial statements as adjusted of$158 million and $272 million
for the six-month period ending June 30, 2014 and the year ending December
31, 2013, respectively.50 The ability to generate cash is important for Midwest
due to its highly leveraged operations. A one percent (1%) increase in the
interest rate of the $7.8 billion of debt will result in an additional $78 million of
interest expense annually. As a result of the transactions and changes in its
business and business structure, Midwest will incur significant non-recurring
expenses which may negatively affect Midwest's short-term income statement
performance. In addition, as a result of the transaction, Midwest may be required
to incur significant capital expenditures for the assimilation its new business and
services along with additional programing costs to maintain its current
programming in the future."
VI. Summary
Using the FCC Form 394 to establish an absolute minimum standard of financial
qualifications that a proposed applicant must demonstrate in order to be qualified as the
successor operator of the System, Comcast and Midwest have the burden of demonstrating to
the City's satisfaction that Midwest has "sufficient net liquid assets on hand or available from
committed resources" to consummate the transaction and operate the System, together with its
newly acquired operations, for three (3) months. This minimum standard is not easy to apply to
a newly formed highly leveraged company with significant transaction and ongoing service
costs. In general, we have also considered the standard practice of lenders that requires
borrowers to maintain certain debt covenants on new and outstanding debt, including certain
cash flow requirements, financial ratios and adequate security, in order to make and maintain a
loan and that if a borrower does not meet these requirements, a loan may not be initially funded.
46 Form 10-Q at P. 5.
47 Form S-1 at p. 35.
48 Letter to Brian T. Grogan, Esq. of Moss&Barnett, PA from Comcast and Midwest Cable, dated September 30,
2014, at p. 15.
49Form S-1 at pp. 33-34.
Sold.
51 Id. at p. 3.
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Based solely on Midwest's financial information that we reviewed, Midwest's public
filings assume that Midwest will receive sufficient debt commitments and the required debt to
consummate the Transaction Agreement. Based on the foregoing and limited strictly to the
financial information analyzed in conducting this review, we do not believe that Comcast's
request for transfer of the ownership of the System to Midwest can reasonably be denied based
solely on a lack of financial qualifications of Midwest, if the financing to consummate the
transaction is obtained by Midwest, as Midwest would have the funds to acquire and operate the
System for at least some initial period of time. The failure to obtain the financing would result in
the termination of the Transaction Agreement and proposed transfer of ownership. Due to the
many uncertainties and lack of information regarding the proposed financing and future
operations, there is not enough information that has been made available to review to make any
conclusions regarding the financial qualification of Midwest's ability to own and operate the
System after the acquisition and initial operating period.
In the event the City elects to proceed with approving the proposed transfer of control,
the assessment of Midwest's financial qualifications should not be construed in any way to
constitute an opinion as to the financial capability or stability of Midwest to (i) operate under the
Franchise, (ii) operate its other operations, or (iii) successfully consummate the transactions as
contemplated in the Transaction Agreement. The sufficiency of the procedures used in making
an assessment of Midwest's financial qualifications and its capability to operate the System is
solely the responsibility of the City. Consequently, we make no representation regarding the
sufficiency of the procedures used either for the purpose for which this analysis of financial
capabilities and qualifications was requested or for any other purpose.
Lastly, in order to ensure compliance with its obligations to operate the System and
since we have based a significant part of our analysis on the financial statements, as adjusted,
of Midwest, the parent entity, we recommend that the City maintain any performance bonds or
corporate parent guaranty, if any, required under any City Franchise. If security funds are not
required in the City Franchise, the City may wish to consider pursuing a corporate parent
guaranty from Midwest in a form as set forth in Exhibit B or as otherwise mutually agreeable to
Midwest and the City. A model resolution has also been attached for the City's review and
consideration as Exhibit A.
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EXHIBIT A
RESOLUTION NO.
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_
("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 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
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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
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 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
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25740690
may be required to maintain the same PEG access functionality as
Grantee currently provides and as otherwise required by the Franchise.
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,
and f 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").
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25740690
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
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.
Approved by the City of Minnesota this day of ' 2014.
ATTEST: CITY OF MINNESOTA
By: By:
Its: Its:
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25740690
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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2574069vl
EXHIBIT B
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 , 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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25740690
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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25740690
♦*i*i Moss & Barnett
MEMORANDUM
To: City of Richfield, MN
From: Brian T. Grogan
Date: December 10, 2014
Re: Staff Report
Background
The City of Richfield is a member of the Southwest Suburban Cable Commission ("Commission'
along with the cities of Eden Prairie, Edina, Hopkins and Minnetonka. 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
operator will change to GreatLand Connections, Inc. The Commission retained the services of
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.
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
150 South Fifth Street I Suite 1200 Minneapolis, MN 55402
P:612-877-5000 F:612-877-5999 W:LawMoss.com
City of Richfield, MN
December 10, 2014
Page 2
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 Richfield 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
Richfield 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.
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.
City of Richfield, MN
December 10, 2014
Page 3
In the end the Commission voted unanimously to approve the proposed transfer subject to the
conditions contained within the attached Resolution. Staff recommendation is for approval of
the Commission's proposed Resolution.
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