AT&T/McCaw Merger Negotiation.

1250 Words Oct 30th, 2005 5 Pages
1. What do you believe McCaw is worth? Prepare a careful DCF using the financial forecast of FCFs given in the case and in the associated spreadsheet. What key assumptions determine the range of high and low values in your valuation analysis? Also draw on any other valuation approaches and information that you can. For the sake of consistency, all groups should use a (low, "Darden") risk premium of 5.5%.

We performed a DCF Analysis for two scenarios: 1) assuming the purchase of the residual equity of LIN Broadcasting; and 2) assuming the sale of the residual equity of LIN Broadcasting (See Exhibits 1 & 2). The most critical assumptions impacting value were: 1) discount rate and 2) terminal growth rate. We relied on discount rates between
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If they keep their place in BOD after the merger, management conflicts may occur

Best alternatives:

* Create own wireless network in PCS sector and start competing with other cellular companies

* Merge with another company which would offer the same growth perspectives in the wireless communication market

* To structure deal as joint venture, which would be an economical approach to entering the market with the access to the technology, cross-marketing and profits. May bring, however, the lack of control to achieving "Anywhere, Anytime" vision.

3. What risks do AT&T and McCaw face in this proposed merger? Consider a range of transactional, financial and operating risks. What effect do these risk factors have on the value of McCaw?

Transactional Risk:

* Other bidders can come in the play to preempt the merger

* AT&T should take advantage from slowing down in the merger activity and lower premiums. If negotiations take a long time, situation can reverse, driving the costs of acquisition up

* To be able to merge, companies need approval from BT which may not want to share the cellular network and lose its chances to capture the US cellular market itself

* To ensure healthy competition, FCC may delay or prevent the transaction

Financial Risks:

* The merger
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