Author: Rachel Barnhart
Greenlight Networks announced in April that billionaire Thomas B. Golisano’s Grand Oaks LLC would acquire the company. Before the sale, Greenlight was secretly-backed by several high-profile Rochester businessman who sued to block the transaction.
The ownership group included developer Robert C. Morgan, Conifer Development founder Richard Crossed, Genesee Regional Bank founder E. Phillip Saunders, Kenyon Capital Holdings II LLC and DKBS, LLC.
The lawsuit filed in February details the difficulties in building out a fiber-to-home network that can compete with market giants Spectrum and Frontier. It also provides a behind-the-scenes look at a company popular with people who want alternatives for home internet.
Greenlight has been gradually expanding its network around Rochester. It seeks to give consumers a choice when it comes to highspeed broadband. Its rollout has primarily been constrained by access to capital.
Court documents filed by the plaintiffs show the partners invested a combined $2.5 million in Greenlight between 2014 and 2017 in the form of subordinated debt. The group became concerned in mid-2017 about the financial position of Greenlight, when they learned the company was in default on its bank loan. They estimated Greenlight needed $2 million by the end of the year.
“I also think it should be made clear that there will be no additional funding with the current governance structure,” said David DeJoy of DKBS in a June email to Kenyon’s Richard C. Fox about Greenlight’s finances.
Court documents indicate the partners met in December with Greenlight CEO Mark Murphy. They proposed converting their outstanding debt to member equity, advancing the $2 million and allowing Murphy to have 31 percent interest in the company. As part of the deal, Murphy would lose his majority interest and the authority to borrow.
The partners felt it was important for them to have supermajority control. Greenlight was under pressure to expand. DeJoy said in an affidavit, “Existing competitors have far larger networks and have not been challenged sufficiently by Greenlight to downwardly modify their pricing. The more rapidly Greenlight can expand its network to more ‘Greenlight Districts,’ the greater the opportunity to capture market share from competitors offering lower connection speeds at the same, or higher, prices before these competitors seek to alter their pricing.”
DeJoy also referenced the rollout of5G mobile broadband technology that posed a competitive threat to Greenlight.
Murphy accepted the deal, according to the affidavits from the partners, and deposited the first installments of the $2 million from the partners.
Murphy informed the partners in February that he was backing out of the December agreement, having agreed to sell the company to Golisano. The terms of the deal included Golisano paying off the $2.5 million in subordinated debt and providing an additional $2.5 million in new capital. Golisano was also buy out the partners’ units based on a company value of $8.5 million.
The partners balked and filed the lawsuit claiming that Murphy no longer had majority stake in the company and couldn’t force the sale without their consent.
The judge issued a temporary injunction in March blocking Murphy from proceeding with the sale to Golisano. The case was quickly settled, as Greenlight never filed responding papers with the clerk and a notice of settlement was filed with the court May 1. The terms were not disclosed.
The Public Service Commission has approved Grand Oaks acquisition of Greenlight. The company plans a rapid expansion of staff and buildout to neighborhoods. In interviews, Golisano has made it clear Greenlight’s main barrier was access to capital. Murphy remains CEO.