Council Sells City Cable Without Seeing Purchase Agreement

Declining Value
Posted by Brian Becker  /   March 17, 2014  /   Posted in Business, Features, FrontSlider, General Articles, Open Access, Political/Government, Sticky  /   8 Comments

Yes, you read that right…

During the discussion at tonight’s City Council meeting, both council members and citizens were told that “Exhibit A” (the Purchase Agreement which was supposed to be attached to the ordinance) would not be available to view until after the council voted to sell City Cable for $17.5M

Jim Chrisman, seemingly exasperated, stood at the podium and said that he would never have imagined Nancy Pelosi coming to Poplar Bluff but here we are being told we have to pass the bill before we can know what is in the bill.

Many citizens asked the council to wait until the next session to vote. Greg West asked “Why the hurry?” He requested to know what was in the deal, but got no where. He asked why the citizens were not being given time to understand the deal being made. One woman in the chamber said she didn’t know anything about it until tonight’s discussion. Angela Pearson made a motion to push the vote off 2 weeks, no council member would second the motion. Angela White asked the council some great questions and later asked them to consider delaying the vote til next Monday. Pearson made that motion too, but no council member would second it.

Where Does The Money Go?

I’ve always been told that there is some law, rule or regulation that hinders the city from taking money from Municipal Utilities to pay City’s general fund bills (or their insurance debt). Tonight I asked Doug Bagby where the profits from the sale would go: in Municipal Utilities accounts or in City accounts. Bagby said that the city owns City Cable and the city will get the proceeds. But I don’t see how, all the assets being purchased are owned by a department of Municipal Utilities. It would seem very difficult to sell Municipal Utilities assets and deposit the money into the city’s coffers. I guess we’ll have to wait to see how the accountant records this transaction and whether it passes the auditors scrutiny.

EBITDA Used To Calculate Sale

The consultant for the city went on and on about how great of a deal this was because the City is being offered 9.3 x EBITDA. EBITDA (which stands for Earnings Before Interest, Taxes, Depreciation and Amortization) is what for-profit company’s use to show their profitability. The only problem is that City Cable isn’t a for-profit business. For-profit companies work to make their EBITDA number as high as possible, Municipalities are not driven by profits so their EBITDA number is purposefully low.

We were told tonight that the City’s 2013 EBITDA was $1.89M which is about 24% of earnings; 36% to 40% of earnings is closer to the industry standard which means that if City Cable was a for-profit venture trying to maximize profit-margins their EBITDA would probably be above $2.8M. The consultant used four recent network sales to justify the price being offered. He used no sale of a publicly owned network in his calculations. All four comparables were private, for-profit company transactions.

Only a fool would sell a municipal asset based on EBITDA. But then again, I’d never believe anyone would sell something for $17.5 million dollars without seeing the purchase agreement.

What Are The Earnings (EBITDA) Of City Cable?

Here are the earnings over the past 6 years. Since City Cable has never been operated to “make a profit” then one way to look at this is that the city finally was able to make a profit on the sale of City Cable. Let’s be clear, this was a profitable deal for the City. My point all along has been it isn’t profitable enough based on the real-world value of City Cable, and for that I have no answer:
EBITDA

Of Course They Can Break The Rules

Our city laws actually prevent council from “passing a bill to know what’s in the bill”. I warned Council that the City couldn’t pass an ordinance if it wasn’t available for viewing prior to the meeting, Wally smugly told the council that I was wrong.

Below is city statute 110.120 which requires any ordinance, which would include it’s attachments, to be in writing and available before the meeting. If it is not available before the meeting, then they are required to read the entire ordinance (including the attachment), not just the title, in order to pass it. The city passed the ordinance tonight by reading only the title of the ordinance twice, and in so doing violated SECTION 110.120 of City’s code.

SECTION 110.120
No ordinance shall be passed except by bill and no bill shall become an ordinance unless on its final passage a majority of the members elected to the Council shall vote therefor and the “ayes” and “nays” shall be entered on the journal. Every proposed ordinance shall be introduced to the Council in writing and shall be read by title or in full two (2) times prior to passage. Both readings may occur at a single meeting of the Council. If the proposed ordinance is read by title only, copies of the proposed ordinance shall be made available for public inspection prior to the time the bill is under consideration by the Council. Upon the request of any Councilman, the ordinance shall be read in full. No bill shall become an ordinance until it shall have been signed by the officer presiding at the meeting of the Council at which it shall have been passed. (R.O. 2007 §2-157; Ord. No. 5215 §1, 10-3-88)

Some of the Details

The network contains 266 miles of fiber
The network passes by more than 12000 homes (I couldn’t read the number of businesses)
10000 sq ft MU/City Cable office is part of the deal (according to Bagby)
50Meg service will be offered
Of the 11 Employees, 3 are being hired by the City
The other 8 employees have no guarantees of employment
6 of the 8 are unionized and their Union Rep said they were protected from losing their job due to the sale of City Cable
April 1st is when New Wave takes ownership

The Good News

I expect that New Wave (www.NewWaveCom.com) will do an amazing job for Poplar Bluff. They are a service oriented company and one thing most can agree on, City Cable never was service oriented. Many users in Poplar Bluff will welcome the 50Meg connection New Wave will offer. And I’m sure all of the TV technical issues will be corrected soon as well.

And since New Wave was able to buy City Cable at a fraction of its value, hopefully that means they won’t need to raise our rates any time soon.

8 Comments

  1. kimsrandomlife March 18, 2014 2:08 am Reply

    I was excited when Municipal Utilities first announced the acquisition of the cable services over a decade ago. Living in the county, I was excited because the promise was made that every home and business in Butler County would be able to subscribe within one year. That never happened. I’d love it if the new company kept that broken promise.

  2. larry hill March 18, 2014 10:35 am Reply

    If all subscribers cancel their service this kind of stunts would end
    There are other avenues of service dish,direct,for some boycom

  3. Larry March 18, 2014 11:00 am Reply

    The level of corruption in the City government has reached an all time high. It seems the corruption just slides downhill like plumbing..corrupt Federal – corrupt State – corrupt City. The City Council and City Managers and all others put in place to protect the citizens should be ashamed of themselves. Sounds like it is time to flush the toilet and bring in some clean water, so to speak.

  4. James March 18, 2014 11:40 am Reply

    Did some digging and here are new wave prices on internet. 3meg 33.99. 10 meg 44.99 15 meg 53.99 30 meg 63.99 and 50 meg 73.99. now do they math I currently have 20 meg for 54.00 that is a down grade at the same price. not a good deal I say

    Source http://www.newwavecom.com/internetpricing/

  5. James March 18, 2014 12:00 pm Reply

    oh and there is a 30.00 on up installation charge as well so who is getting hosed here

  6. Shirley Clark March 18, 2014 7:10 pm Reply

    Those of us on City Cable now…..will we be charged an installation charge, with new owners of the cable service??? Also wonder if any of the current members of the City ouncil are stock holders in New Wave????

  7. Pingback: Judge Denies TRO to Stop City Cable Sale without $17M Bond | SEMO.net

  8. Nita April 4, 2014 6:24 pm Reply

    Unfortunately the city council members did not or were not able to answer the questions that were asked of them at the meeting the night they voted to sell city cable. I was appalled at the smugness from the council members where our citizens inquiries were concerned. I am ready for a change here and I hope we see one on Tuesday (-:

Leave a Reply

  • About Us

    Bluff Technologies, Inc.
    d.b.a. SEMO.net

    1899 N Westwood Blvd #218
    Poplar Bluff, Mo 63901