Memphis Networx: Why the Rush? 

BY CHRIS DAVIS | JULY 3, 2007

The clock is ticking. On Thursday, July 5th, MLGW's Board of Governors will vote whether to sell Memphis Networx to a Colorado-based holding company, Communications Infrastructure Investments (CII), for $11.5 million -- a loss for MLGW exceeding $28 million. Networx representatives have cautioned that any significant delay could negatively impact a deal that, for MLGW ratepayers, is already negative.

Before the vote, however, some serious questions should be asked regarding potential conflicts of interest and the business practices that led MLGW to this juncture.

First, if MLGW is already prepared to eat almost all of its $29 million investment, what do the ratepayers stand to lose by delaying this decision long enough to ensure that the sale is on the up and up?

Question two: Who exactly is Tom Swanson, the McLean Group consultant who assembled the list of Networx potential buyers and helped facilitate the deal? Last week, when City Council chairman Tom Marshall asked that same question, Networx board member Nick Clark responded by quoting Swanson's McLean Group Web bio, which leaves out an interesting piece of information. Swanson's bio for his own private consulting business (TJSwansonCo) lists his involvement with a now-shuttered company called Intira, where, according to SEC records, he served as vice president of sales. Intira was co-founded in 1998 by former Networx CEO Mark Ivie and employed former Networx controller Jeff Rice as well as current Networx CEO Dan Platko. Given his background, should Swanson have been the broker for the deal?

An official contract signed by Platko and obtained by the Flyer suggests, and other sources verify, that late last year, Platko offered Swanson $2,000 a day to consult with Networx' sales division through his private firm. Swanson's compensation may have dropped by about one-third when he took on the job of assisting with the sale of Networx through the McLean Group in December 2006.

More questions: Who stands to profit from the sale of Networx? Certainly not MLGW ratepayers, currently taking a $28 million bath. Will any Networx executives have employment opportunities with the new ownership or with companies related to the new ownership? Have there been any arrangements made behind the scenes that may have tilted the scales in CII's favor?

This isn't the first time Memphis Networx has been positioned for sale. American Fiber Systems (AFS), the New York communications infrastructure company that submitted a bid for Networx valued at $13 million, has been trying to acquire the company since 2004. AFS' initial bids involved no cash, but Networx execs and at least one board member showed substantial interest.

More recently, AFS placed a higher combined cash-and-stock bid for Memphis Networx than CII, but it wasn't the highest. Ohio-based BTI Corporate, a communications firm looking to partner with Memphis Bioworks and strike a deal with MLGW that could allow the local utility to recoup some of its losses, submitted a bid valued at $20 million.

Whose best interests have been served in the rush to unload Memphis Networx? The ratepayers? The private investors? Or someone else? Ultimately, selling Networx -- even at a loss -- may be in MLGW's best interests. But given the history, it's important that MLGW's ratepayers know who profits from the botched $29 million investment and why.

--Chris Davis

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