VALUATION OF AIRTHREAD CONNECTIONS Harvard Case Solution & Analysis

VALUATION OF AIR THREAD CONNECTIONS Case Study Solution

In this report, we attempt to perform the valuation of AirThread Connections Company, which is being acquired by American Cable Communications. The ACC has the ability to finance this acquisition by taking out a large amount of debt and thus wants to determine the value of the company by using the leveraged buyout approach. The adjusted present value method has been used to determine the price of AirThread Connections. The PV of the unlevered free cash flows has been calculated and unlevered cost of capital has been calculated to determine their PV. The terminal value has been calculated based on the computed terminal growth rate and the weighted average cost of capital based on the industry’s debt over equity ratio. The bullet payment made on the loan would stabilize the debt to equity ratio approximately to the industry averages in 2012. The value of the non-operating assets has also been calculated using the multiples approach. The operating value and the non-operating values have been both combined to determine the enterprise value of $ 7681 million for AirThread Connections.

Introduction

American cable Corporation (ACC) has a long history of successful acquisitions and mergers with the other companies within the industry. The portfolio of the business of ACC has been expanding and now the management of the company is looking to acquire another company to add value to the business. The company proposes to acquire AirThread Connections and believes that this acquisition would enhance the value of the company and provide it with options to integrate forward and backward.

Cost efficiency and revenue synergies would also be generated from this acquisition and the acquisition was perfectly fit in strategic terms. The current clientele would be increased with the combination of the two companies and it will position ACC as a market leader in the bundled wireless service provider. The companies would be able to expand to new markets, which will increase the revenues and result in network utilization of both the companies. However, before the deal goes ahead, the valuation of the company needs to be carried out using a suitable methodology. In this report, we perform the valuation for AirThread Connections excluding the synergies and illiquidity discounts.

Analysis

First, we begin with a discussion of the strategic rationale for American Cable Communications for Acquiring AirThread Connections.

VALUATION OF AIRTHREAD CONNECTIONS Harvard Case Solution & Analysis

 

 

 

Strategic Rationale for American Cable Communications Acquisition of AirThread Connections

The basic premise of the acquisition of the AirThread Connections was threefold. If American Cable Communications acquires AirThread Connections then they can help each other in the industry that was adopting the trend of offering the bundled service offerings. Currently, American Cable did not have any kind of the wireless offerings and therefore, the company saw a looming competitive threat from the advanced wireless networks in the industry based on the 802.16n standard for mobile WiMAX.........................

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