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Valuation of AirThread Connections

M&A Case Study
GROUP 3
Ashish Chandel 11B
Pradeep Reddy Badaam 33B
Prasoon Gupta 34B
Prince Choudhary 35B
Rajesh Gadde 32C
Reedhima Singh 39B
Overview of Cable Industry
Advances in
Technology
Changes in
Regulation
Shift in Competitive
dynamics
Large investment in
network
infrastructure
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Overview of ACC
Company
Robert Zimmerman- Senior VP of BD
Currently Offers video, internet and landline telephony but no
wireless offerings
Consolidate Revenue and NI of $30.9 bn and $2.6 bn in 2007
respectively.
Competition
ILECs with wireless networks
Increasing cost of acquiring new customers and the high
penetration rates in video and high speed internet
M&A
Strategy
From 1999 to 2005, BD group spearheaded $15 bn of acquisitions
and developed unique operational know-how in area of merger
integration
Past strategy: Purchase the target with a significant amount of debt
and then pay down the debt to a sustainable long-term level that
was in line with industry norms
Air Thread Connections Business
Provided service in more than 200 markets in 5 geographic regions
2007 revenues were expected to be $3.9 billion
The network covered more than 80 million people
Challenges
Wireless communications market was intensely competitive
The competitors had big pockets when compared with ATC
ATCs operating costs were approximately 20% higher than its main rivals
It could not bundle its wireless services with land line, internet or video services
Avg. revenue per min. decreased from 6.71 to 5.95 cents over the last year
Cost of acquiring a new customer increased from $372 in 2005 to $487 in 2007
ATC had lower operating and EBITDA margins compared with its primary rivals
The above challenges made ATCs long-term survival doubtful
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Synergies
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Increasing shift
towards
bundled service
offerings
ACC
Offers video, internet and landline
telephony
No wireless offerings
Growing completion from ILEC wireless
networks
AirThread
Did not offer landline or internet
service
Immediate competition due to
growing costs and slowing growth
Expansion into
the business
market
Current situation
Heavy reliance on retail/residential
customers
Less stability and reliability of
revenues
Opportunity to increase network
utilisation and cost efficiency
Add value to
AirThreads
operations
Cost disadvantage compared to ILEC
wireless competitors
Potential to reduce around 20% of
backhaul costs
Valuation Results
Scenario Value(in $mn)
Enterprise Value without Synergy 7669.5
Enterprise Value with Synergy 11118.1
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Detailed Valuation showed in excel
sheet attached.


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Thank You