Air Thread Case - Harsh Kamlesh Shah PDF

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Name: Harsh Kamlesh Shah Case: AirThread ACC should acquire AirThread as it is a strategic fit and it will reduce the operating costs for ATC. ACC currently lacks wireless services, the advantages to this acquisition would be bundled service offerings (video, internet, wireless and landline), expansion into business markets and acquisition of new customers, improved network utilizations, cost reductions, access to 200 markets serving 80 million people, controlling interest in 25 operating markets, coverage in new areas and better use of AirThread’s technology. By APV (excluding synergies): WACC: 7.19% D/E: 0.409 Beta: 0.9 Terminal Value: 6.322 Million ROA: 7.82% Therefore, after calculating, PV of unlevered cash flow comes out as $1272 Million (excludes TV) Future growth rate: 3.5% Debt is 5 times EBITDA as mentioned in the article, with the help of which interest tax subsidy comes out to $278 million. Non-Operating asset value is $1730 Million. Adding all values, the value of AirThread comes out to be $9603Million. After discount of 15% ($1440 Million), value of AirThread is $8162Million before considering any synergies. By WACC (excluding synergies): Average beta: 0.82 MRP: 5% Rf: 4.25% D/E: 50% (for PV by FCF) D/E: 40.1% (industry average for PV by TV) WACC: 7.04% PV of FCF: $1299.46 Million PV of TV: $4420.03 Million (where, g=2.5%, r=7.62%, TV=$6380.67Million) PV of Tax Shields: $284.78million (where, tax rate=40%, discount rate=5.5%) PV of non operating assets: $1719.23million (where, P/E multiple of 19.1x) Therefore, total Enterprise Value: $7723.91 Million, after 10% discount it comes out to a net EV of $6951.21 Million

Name: Harsh Kamlesh Shah Case: AirThread Would you use the same discount rate that was used to discount the free cash flows in 2008 - 2012? Why or why not? Since the outstanding debt will be paid down based on a predetermined schedule over the intermediate term, the APV method is well suited over this period. As a result, the intermediate FCF will be discounted at Ra. However, for the long-term, the intention is to employ a target D/V based on the industry average. This type of constant capital structure scenario is ideally suited for Rwacc. Thus, we need two discount rates for two distinct setting....