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By: Chris Cruz Zach Hatoum Michael Pea Kevin Reilly Ali Zaidi

48.5 million homes had ACC cable passing through 24.1 million video subscribers 13.2 million high speed internet 4.6 million landline telephone Expected consolidated revenue of $30.9 billion (2007) Expected Net Income of $2.6 billion (2007)

One of the largest regional wireless companies in the United States Service more than 200 markets in 5 geographical regions Firms network covers 80 million people Expected revenue of $3.9 billion (2007) Expected Net income of $400 million (2007)

Intensely competitive AirThread competed directly with 3 to 5 major competitors in each market
Includes all national carriers which had greater financial, marketing, sales, and technical resources

Competition based on price, service area size, call quality, and customer service

Operating cost disadvantage Inability to bundle wireless service Recent trend toward bundled services freezing ATC out of business market

1. 2. 3.

3 Reasons for acquisition Ability to bundle service Expand Business market American Cable Communications could increase AirThread Connections operations
Could finance with significant leverage

Reduction of AirThreads backhaul costs


Estimated at 20% of companys system operating expenses Would still require the use of some leased lines and microwave transmission in many areas Cost savings would be gradual Estimated total system operating cost savings would be 6% realized over four years beginning in 2009

Increases in revenue resulting from cross selling and bundling with ACCs services
Attract business customers by offering services by same provider

1.

2.
3.

Projecting operating results Estimate appropriate cost of capital Quantify potential synergies
Assume maximum amount of leverage possible to be used Separate non-operating assets/liabilities in valuation to concentrate on operations

Using Comparable Companies:


Calculate Enterprise Value of the Firms Determine Market Ratios Applying Market Ratios to AirThread Find Outliers

Using Comparable Companies:


Step 1.) Determine AirThreads Beta Step 2.) Calculate Cost of Equity Step 3.) Calculate WACC

Reinvestment Rate = (CAPEX + Working Capital Depreciation)/NOPAT Return on Capital (NOPAT/BV of Assets) Growth Rate = Reinvestment Rate

FCF= EBIT*(1-Tc)+ Depreciation - Net Fixed Assets - Working Capital Terminal Value= CF12*(1+g)/(WACC-g) NPV= CF1/(1+r)+..+ CFn/(1+r)n $ 7,733.61 $13,848.97 (Upside) Increase in Value of $6,115.36

Begin with value of firm without debt and add present value of tax shield Discount cash flows by unlevered cost of equity Discount tax benefit by cost of debt Present Value of Tax Shield=(Tax Rate)(Debt)(Cost of Debt)/(Cost of Debt)

Valued AirThread at $7,455,806,667


Found this by averaging:
Market Multiples Approach APV DCF

Illiquidity discount

Loan of $3.758 Billion


EBITDA Interest Coverage Ratio=5.58% Debt to Value Ratio=50%

Issue ACC Common Stock Equivalent to AirThread Investors Current Holdings


Ex: If owns 1% of AirThread, they are given the equivalent monetary value to holding in ACC stock

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