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Valuation of AirThread Connection
Fundamental objective of this report is to present valuation of AirThread Connection. "American Cable Communication (ACC) was one the largest cable operators in the United States"(Stafford & Heilprin 2011P 36). In December, 2007, ACC cable systems reached approximately 48.5 millions homes with approximately 24.1 millions video subscribers. The company also enjoyed patronage of 4.6 million landline telephone subscribers and 13.2 millions high speed internet subscribers. The company consolidated revenue in 2007 was $30.9 billion and the net income was $2.6 billions. Presently, ACC offered internet, video and landline telephony, however, the company did not provide wireless offering making the competitors to exploit the gap in the product offering. With the looming competitive threats that ACC was facing because the company did not offer wireless offering, ACC decides to acquire AirThread Connection (ATC) because ACC believed it could achieve a competitive advantage with acquisition of AirThread Connection.
"AirThread Connection (ATC) was one of the regional largest wireless companies in the United States providing service in more than 200 markets in five geographical regions." (Stafford & Heilprin 2011 P. 37). The company revenue was approximately $3.9 billions and the company operating income reached by $400 millions in 2007. However, AirThread had a cost disadvantages because of the stiff competition that the company was facing primarily by the incumbent local exchange carriers (ILEC's). Moreover, AirThread was experiencing slower growth and higher retention costs. Since American Cable Communication was not offering wireless network offering and AirThread was offering wireless service, acquisition of AirThread could assist both companies to grow and expand market base. With acquisition, both companies would enjoy cost advantages and expand markets. Expand into other line of business would assist American Cable Communication to increase cost...
Typically, there are following potential advantages that both companies could derive from acquisition: (Luenberger, 1998).
Both companies would have ability to bundle service with acquisition.
Ability to expand the market potentials
American Cable Communication would have ability to increase AirThread Connection's operations.
With the valuation of AirThread Connection, the report segregates the potential synergies into various categories.
Potential Synergies
The potential synergies in the valuation of AirThread are as follows:
First, there would be reduction of AirThread backhaul cost, and this is estimated at 20% of the AirThread operation expenses. The AirThread backhaul costs would still require the use of microwave transmission and lease lines in many areas.
Additionally, there would be gradual cost saving and there would be 6% savings in operating costs that has been realized over four years starting from 2009. A more difficult set of synergies were to evaluate the increase in revenue that result from bundling and cross selling with American Cable Communication service. This will make both companies to attract business customers since both companies could now offer wireless service internet service and wire line to customers.
Valuation
The report employs Discounted Cash Flows (DCF) and NPV for the evaluation of AirThread Connection.( Ross, Westerfield, et al., 2003).
The Exhibit 1 is used for the AirThread projection, and the projection will allow the report to understand the AirThread Total Revenue, EBIT, EBITDA and the Unlevered Net Income. The information would assist the report to compute Discounted Cash Flows from 2008 fiscal year to 2012 fiscal year. Additionally, the report uses Depreciation & Amortization, Capital Expenditures as well as assumption that have been established in AirThread…
References
Ross, S.A.Westerfield, W.F. Jaffe, (2003). Corporate Finance, 3rd Canadian ed. New York: McGraw-Hill/
Ryerson.
Luenberger, D.G. (1998).Evaluating Real Investment Opportunities. Investment Science. New York: Oxford University Press.
Stafford, E. & Heilprin, J.L. (2011). Valu.ation of AirThread Connection. Harvard Business Publishing.USA.
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