PROVO Broadweave Network executives faced another volley of tough questions this morning on their offer to buy the city's fiber-optic network this time at the hands of the Provo City Council-appointed iProvo Review Committee.
The special committee, a veritable who's who among local businessmen and politicians, met this morning to review Broadweave's proposal to assume control of iProvo for $40.6 million, essentially relieving the city of its financial obligations.
According to the agreement, the city will receive the sum of the $40.6 million payment by taking out a loan, said Provo Finance Director John Borget. Broadweave will then make monthly payments of $277,000 for the next 19 years to pay off Provo's bonds, plus interests, for a total of about $63.2 million.
The money will also go to pay off $2.9 million the city will need to front to close the sale, as well as transfers made from the city's energy department to subsidize iProvo throughout the years.
Most committee members said they had good feelings about Broadweave and what it would bring to a network that has experienced slow growth rates and mounting costs. Recent reports provided by City Councilman George Stewart show iProvo continues to lose subscribers.
In April, 229 subscribers left the network, bringing the number of subscriptions to about 10,250. Stewart also provided a report showing that the city transferred $12.3 million between 2001 to 2005 from the city energy fund to keep iProvo afloat. The city also approved a $1.2 million transfer to iProvo from general fund sales tax receipts, bringing total iProvo investments to about $13.5 million.
The city has limited options in a situation like that, said Rep. Steve Clark, RProvo.
"Under that scenario, we need to sell it," he said.
But for all the good committee members see in Broadweave's proposed acquisition of the network, that didn't keep them from casting a scrutinizing eye over the terms of the sales agreement.
Clark said it appears Broadweave isn't assuming enough risk.
"There's no skin in the game from these folks," he said. "They're walking in with no dime down and taking over a $40 million asset."
Borget said Broadweave offered the city a letter from Sorenson Capital, a Salt Lake-based private equity firm, that guarantees the city $6 million. Should Broadweave miss a monthly payment, that amount could be withdrawn from that amount, Borget said.
Sorenson Capital previously announced it would invest in Broadband to make the purchase possible.
Stan Lockhart, director of government affairs for IM Flash and a state GOP leader, said he's impressed with Broadweave, but he wanted to know what would happen "if things went south" and Broadweave had to abandon its plans.
City Attorney Ryan Wood said the city would get the asset back as well as the $6 million guaranteed by Sorenson Capital.
Clark responded, saying the company should back the guarantee letter for at least $40 million. "Six million is peanuts," he said.
Clark turned to Steve Christensen, CEO of Broadweave, and said: "I don't think that any of us really believe you'll fail ... the question is why aren't you willing to put any money into this deal? I mean, cash to the city."
Christensen said there's a fallacy in that statement. He said the company and the city came up with a model to release the city from financial liability while freeing Broadweave to invest its money in what matters.
"It gives us the ability to invest in what really counts," he said. "And what counts is getting customers."
City Councilman George Stewart said he's less interested in how much cash is going to the city as he's concerned with how successful the company becomes.
"I would rather have them put money into the system and be successful," he said.
Clark said he thinks the city painted itself in a corner because it didn't send out an RFP specifically asking for companies to bid on iProvo.
"Why have we not allowed others to bid on this?" he asked.
Stewart said the city received about six responses from companies offering to privatize iProvo when the city sent out its Requests For Proposals (RFP) in April 2007, and they chose Broadweave. He also said it's not common practice to put a business up for public sale because that impacts the business' value.
"It just isn't done," he said.
City Councilman Steve Turley also asked Christensen about Broadweave's customer base of about 1,100. Christensen did concede the company was going to experience substantial growth when it assumes command of a network with 10,000-plus subscribers, but he said he thinks Broadweave has proven its ability to manage networks.
"What we've done is we've created an amazing platform," he said.
Clark repeatedly asked to know what Broadweave is worth. Christensen declined to answer, but said Sorenson Capital recently announced it would pump $400 million into various enterprises, including Broadweave.
Committee members also asked to find out what will be the fate of Veracity and MStar. The firms reportedly owe the city $950,000.
Christensen said that announcement is forthcoming.
Christensen said he wasn't expecting so many hard questions.
"Now I feel like I'm in an impeachment hearing," he said.
Despite the hardballs, committee members repeatedly expressed confidence in Broadweave.
"We want you to succeed," Lockhart said.
"We're just doing our job," Utah County Commissioner Steve White added.The City Council will review the proposal to sell iProvo in a study session 5:30 p.m. tonight in the council chambers at 351 W. Center.