Of the $302 million sales price quoted for Murfreesboro Electric Department (MED), a $43 million down payment is basically being paid by MED itself, according to public records and a radio interview.
The sales price includes a valuation of $202 million.
A Nov. 14 MED cash report shows the utility had a cash balance of $51,971,982.23 and a projected February cash balance of $46,055,088.69.
MED General Manager P.D. Mynatt and Middle Tennessee Electric Membership Corp. President and CEO Chris Jones appeared on WGNS last Wednesday. Jones said that per the purchase agreement, MTEMC is paying for MED’s assets including physical holdings and cash.
Mynatt told WGNS that the $43 million down payment is “unencumbered cash balance that we estimate will be available and the 202 (million dollars) is the value of the assets.”
Public records show that City Manager Craig Tindall emailed the city’s sales consultant, Jackson Thornton, and told it to “substantiate” the lower of two valuations it had provided the city, more closely matching MTEMC’s offer. The records were obtained through the Freedom of Information Act.
The Murfreesboro Post emailed Mike Browning, the city’s public information director, these questions: In addition to the city keeping the MED building and storage lot and leasing them for three years, does the city keep any other asset like cash on hand or fleet vehicles? If the city had valuations from Jackson Thornton for $207m and $267m, why go with the MTEMC valuation of $202m?”
Browning replied by email, attributing the response to Tindall. The response said, “During the negotiations of this transaction the City was cognizant of the fact that it serves both the interests of the citizens and electric ratepayers. The City believes it has achieved the appropriate balance in the price that has been established for Council consideration. The valuation process is a guide for negotiations. There are many complex variables involved in the valuation process and there are financial factors to the transaction that lay outside the valuation process. With respect to the assets, generally the primary assets excluded in the agreement from transfer are the Electric Department building and the storage lot. There are other typical technical exclusions, but cash on hand and vehicles are not included with the excluded assets.”
City receives two values
On May 14, documents show, Jackson Thornton provided Tindall with two estimates — one for $207,417,000, and one for $267,018,000.
MTEMC engaged NewGen Strategies & Solutions to provide its valuation estimate. In an April 24 report, that company valued MED at $202 million based on fair market value. They defined fair market value as “The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.”
Lower estimate selected
On July 26, public records show, Tindall emailed Jackson Thornton officials and said, “Gentlemen: The City and MTEMC have tentatively agreed on a fair amount of $202m + available cash for the transfer of MED operations to MTEMC. We are planning a joint meeting of the City Council and the Power Board for 8/14. That would be the initial public presentation of this potential transaction to Council. Council would then direct staff to move forward with preparing documentation.”
Tindall continues, “A couple of requests. First, could one of you attend this meeting in the event any questions come up about the valuation. Secondly, please take a look at the valuation and substantiate the $202m amount if possible.”
A representative for Jackson Thornton emailed Tindall on July 29 saying, “Congratulations. I will be able to attend the board meeting on the 14th. What time do you meet? We will work on the valuation related to the $202m. Would you have some time after Tuesday to make a plan?”
Jackson Thornton’s report for the $267 million estimate said they based it on MED’s operational cash flows. Their report for the $207 million estimate said they based it on cash flow from operations before the addition of available cash.
When the City Council tried to sell Murfreesboro Electric Department in 2015, the city’s consultant set the value at $422.9 million, far above MTEMC’s offer of $150 million. The co-op initiated the sale proposal at that time.
Another city document provides some answers.
A briefing book on the deal prepared for the City Council acknowledged NewGen’s income approach to valuation led to a $202 million estimate. Jackson Thornton, the book says, created a $250 million estimate using a cash flow analysis.
“The work of these professional services firms guided the City and MTEMC to a price for MED’s operations that is proposed for this transaction,” the briefing book says. “In coming to the proposed price, recognizing that the proposed transaction price affects citizens who are also ratepayers, it is important that the City and MTEMC come to a fair and reasonable agreement that balances the long-term interests of ratepayers and citizens.”
“In light of these interests, City and MTEMC reached a purchase price of $245,000,000 along with other important terms,” the briefing book says. “This price appropriately balances the interests of ratepayers and the benefits that will flow to citizens by transferring the value of the electric system to other long-term community investments. An informed negotiated price provided other benefits. It assures the electric system continues to be managed locally by a well-run utility within the TVA system.”