Teletech Corporation Essay

* Stern School of Business, New York University, New York, NY 10012, (212) 9980864, fax (212) 995-4218, http://www.stern.nyu.edu/networks/, neconomi@stern.nyu.edu Copyright ©, N. Economides

Over a quite long period prior, telecommunication system has incredible improvements from the wire to wireless phone technology. “The ability to convey information quickly, accurately, and efficiently has always been one of the main focuses driving human innovation. From prehistoric man with their signal fires to the smartphone-wielding high-powered executives of today, communication still remains a key for survival and success.” (The History of Telecommunication) Telecommunications set a worldwide network helping people closer together. Nowadays, there are many firms with good services, such as AT&T, Sprint, PCS, T- Mobile, and Verizon in the US. Among these firms, AT&T is the telecommunicating firm that I would like to mention here about its mobile share value plans. Besides its services and products supplied, the mobile share value plans are one of the major changes of AT&T in 2014. The AT&T’s competitiveness, which is based on its pricing and servicing policies, is to measure against other companies in the Telecommunication Industry market.

Sprint Corporation is a global communication company focusing on both business and residential customers. The company line of business is in digital wireless communication service and Sprints FON. The company offers local, long distance and wireless communication service at local, national and global level. (Sprint Nextel, 2010). Between 2009 and 2011, the company recorded a decline in the net income making the company to record 3-year average of -7.83% in Return on Assets (ROA), -34.06% in Return on equity (ROE), and -9.36% in Return on investment (ROI). The report carries out industry analysis to compare the company with its peers.

This case deals with the valuation of AirThread Connections Business (ATC) from the perspective of its potential acquirer, American Cable Communication (ACC). ACC is a large cable operator which serves the video, internet and landline telephony needs of millions of users across America. However it is recently looking to acquire ATC which is one of the largest wireless companies in the United States. This acquisition will bring with it certain synergies that both can benefit from, which is primarily the reason behind the valuation requirements of AirThread.

The Venture Capital method detailed in Lerner and Willinge (2011) was utilized to estimate the value of Telco Exchange. Exhibit 1 details the calculations. It is assumed that an illiquidity discount of either 20% or 40% will occur at exit. This is because given the estimated sizes of the firm in 2007 it is highly unlikely that the firm will undergo an IPO in 2007. Thus the other choices are a strategic or financial acquisition. A strategic acquisition is the most likely form of exit. So it is likely that there will be an illiquidity discount and given the relatively small size of the firm the illiquidity discount is likely to be significant.

The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%.  What is the company's current stock price?

Required rate of return AA industries = risk free rate + market risk premium*beta AA industries

Due to the fact that non UK companies' betas were calculated in relation to specific country stock markets we believe that using the total industry average betas shown in the Exhibit 8 of the case that include betas of non UK is going to provide us skewed results. Using the data from exhibit 8 of the case we calculated asset betas for UK based companies involved in the same industries as Grant Metropolitan. (see Exhibit 1) Using specific companies’ asset betas we calculated average asset betas for Restaurant – retailing, food processing and drinks industries. Next using Grant Metropolitan balance sheet (exhibits 3 and 9 of the case) we identified the debt-to-equity ratio and tax rate. Next we calculated levered equity beta for each of the industries that Grant Metropolitan is involved in. Using the net assets percentages by industry we calculated weighted average levered equity beta for Grant Metropolitan which is 1.51. (see Exhibit 1). Next we determined that most of Grant Metropolitan debt was for 5 year term therefore we used the U.K. Gilts 5 year yield as risk free rate (10%) for the purpose of cost of equity calculation. We used UK risk free rate due to the same reasons as we used UK companies to calculate industry asset betas. Using exhibit 9 of the case we identified the market risk premium to be 3.9%. Using this date and formula

SolvencyGearing | 643/659.6 = 97.48% | 500.3/503.4 = 99.38% | Interest Cover | 183.7/27.3 = 6.73 times | 189.7/56.5 = 3.36 times | Investors RatiosEarnings per Share | 117.2/1287.1

1a. Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74 over T-bonds. Which beta, risk-free rate, and risk premium did you use? Why? Financing Components Debt Equity Market Values Weight Cost of Capital (After Tax) $ 6,823,736,197 0.85 3.72% $ 1,176,263,803 0.15 28.18% Total: $ 8,000,000,000 1.00 WACC WACC Inputs: Beta: Risk-Free Rate: Market Risk Premium: Pre-tax Cost of Debt: Income Tax Rate:

By using the company return and the Value Weighted Returns of the Market, we derived the companies’ levered equity betas and then unlevered them.

For estimation of betas, the above equation was run for the period from Jan, 2003 to Dec, 2006. Based on the estimated betas we have divided the sample of 63 stocks into 10 portfolios each comprising of 6 stocks except portfolio no.1, 5 and 10 having seven stocks each. The first portfolio 1 has the 7 lowest beta stocks and the last portfolio 10 has the 7 highest beta stocks. The rationale for forming portfolios is to reduce measurement error in the betas.

In this stage we would calculate the required rate of return of the asset, we can get the required rate of return of the debt in the case (the 9th line, 4th paragraph, Page 9), and assume the debt to equity is 2:1 (the 4th line,3rd paragraph, Page 9) and equity beta is equal to 1.1, the same as BMW’s equity beta (Exhibit 4, Page 16), the required rate of return of the market can use the Italian equity market data to take average, and we use Italian Treasury Bond rate as risk free rate.

British Telecom My aim in this investigation is to discuss whether or not British Telecom has successfully grown and developed since its Privatisation to compete on a world scale. In addition to this has it any long-term strategies for future growth and development of products. According to the 1996 Budget Red Book, more than 50 major businesses have been privatised since 1979 and the state owned sector of industry has been reduced be two-thirds.

per our assumptions, our equity risk premium4 is 6.5%. Our Risk Free rate (Rf) is