Valuation of Airthread Connections Essay

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REV: APRIL 27, 2012

ERIK STAFFORD
JOEL L. HEILPRIN

Valuation of AirThread Connections
In early December 2007, Robert Zimmerman, senior vice president of business development for
American Cable Communications (ACC), was in his office sifting through a number of investment banking proposals related to potential acquisition targets when he paused to consider the recent presentation made by Rubinstein & Ross (R&R).
Rubinstein & Ross was a boutique investment bank with a strong reputation for doing deals in the media and telecommunications sector. During that meeting, Elliot Bianco pitched the idea of
American Cable buying out AirThread Connections, a large regional cellular provider. The basic premise of the AirThread
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In addition to the strategic fit, R&R believed that it could obtain a significant amount of debt financing for an AirThread acquisition. Bianco was confident that the high quality of AirThread’s network assets, its valuable wireless spectrum licenses, and its steady cash flow would merit a debt to value ratio as high as 45% to 50% based on EBITDA coverage ratios exceeding 5.0x.1

American Cable Communications
In December of 2007, American Cable Communications (ACC) was one of the largest cable operators in the United States. The company’s cable systems passed roughly 48.5 million homes and served approximately 24.1 million video subscribers, 13.2 million high-speed internet subscribers, and 4.6 million landline telephony subscribers. Consolidated revenue for 2007 was expected to be
$30.9 billion with net income of $2.6 billion.

Overview of Cable Industry Dynamics
The cable industry had been rapidly transforming over the last decade as a result of advances in technology, changes in regulation, and shifts in competitive dynamics. In turn, these forces had been driving large investments in network infrastructure that require commensurate increases in the customer base to effectively utilize the new capacity. It was this need to acquire economies of scale and scope that led American Cable’s executives to believe that only a handful of very large network providers would survive into the

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