Category winner:
Valuation of AirThread Connections

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This case won the Finance, Accounting and Control category at The Case Centre Awards and Competitions 2016.
 
The case

Who – the protagonists

Robert Zimmerman, senior vice president of business development for
American Cable Communications (ACC).

What

American Cable’s business development group has been tasked with the primary goal of increasing the company’s customer base as a means to fuel both top line growth and network utilisation.

takeoverWhy

American Cable’s executives believed that only a handful of very large network providers would survive into the future. The smaller companies would eventually be weeded out through industry consolidation. As a result, American Cable became an aggressive acquirer.

From 1999 to 2005, ACC’s business development group spearheaded more than $15 billion of acquisitions and believed it had developed a strong corporate finance team with significant acumen in identifying, valuing, structuring, and executing corporate control transactions.

When

By early 2007, Zimmerman was considering the possibility of acquiring AirThread Connections, one of the largest wireless companies in the United States. It offered services in more than 200 markets across five geographic regions.

Where

mobile phoneIn December 2007, American Cable Communications was one of the largest cable operators in the United States.

The company’s cable systems served approximately 24.1 million video subscribers, 13.2 million high-speed Internet subscribers, and 4.6 million landline telephone subscribers. Consolidated revenue for 2007 was expected to be $30.9 billion with net income of $2.6 billion.

Key quote

‘In a commoditised industry, it is usually the low-cost producer that survives and thrives.’ –  AirThread CFO, Michael Balistreri

What next?

Zimmerman had a lot on his plate. There was considerable pressure, both internally and externally, to scale American Cable’s business. This would help ensure that ACC remained a viable industry player and would also help improve profitability through better network utilisation.

But there were considerable risks too. He was well aware of several high profile takeovers that had ended in bankruptcy or considerable loss of shareholder value, and overpaying for a target company was one of the quickest ways routes to disaster.

The authors

author

Erik Stafford and Joel L. Heilprin

Erik and Joel explain what winning this award means and offer some case writing advice.

Pedagogical contribution

airthreadWe are very pleased to receive this award as it means that we are being acknowledged as having made a pedagogical contribution in the area of financial case method.

Challenging and comprehensive

Students like this case and it’s enjoyable to teach because it demonstrates how several financial concepts can be weaved together. This makes for a challenging and comprehensive case which also mirrors real-world financial analysis and modelling.

Fictionalised

profitThe case is a fictionalised account of true events. To successfully fictionalise true events in this way it’s necessary to start with a concept(s) you wish to teach, and then look for real world scenarios in which it applies. 

Wider debate

The case includes two interesting characters – Zimmerman and Zhang, but contention among the characters is not the primary aim of the case. The wider debate is about how and when certain valuation methodologies should be employed.

In the case of AirThread, the tension is between WACC-based DCF (weighted average cost of capital/discounted cash flow) and APV (adjusted present value): when those methods should be used, and whether they can be combined in the same analysis.

About the authors

Erik Stafford is John A. Paulson Professor of Business Administration at Harvard Business School.
e estafford@hbs.edu

Joel L. Heilprin is a Finance Professor at Hult International Business School, and was at Illinois Institute of Technology when the case was written.

e joel@59thstreetpartners.com

 
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Valuation of AirThread Connections
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