Mccaw Cellular Communications: the at&T/Mccaw Merger Negotiation

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  SGMT
 6050
 –
 Case
 Write-­‐Up
 

McCaw
 Cellular
 Communications:
 The
 AT&T/McCaw
 Merger
 Negotiation
 

  Armin
 Ezatagha
 
  Student
 Number
 ⏐
 205
 576
 707
  eMail
 ⏐
 aezatagha12@schulich.yorku.ca
 
  Schulich
 School
 of
 Business
  Tuesday,
 March
 05,
 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

Current
 Telecommunications
 Ecosystem
 
  McCaw
 Cellular
 Communications
 (MCC),
 although
 positioned
 well
 with
 a
 new
  acquisition
 of
 LIN
 Broadcasting,
 find
 themselves
 in
 debt
 by
 $5
 Billion
 could
 benefit
 from
  AT&T’s
 (ATT)
 brand
 name,
 data
 banks,
 marketing
 clout,
 and
 technical
 expertise.
 For
 this
  reason
 and
 the
 rapid
 pace
 of
 the
 changing
 technologies
 and
 players
 in
 the
  telecommunications
 industry,
 we
 are
 considering,
 herein,
 the
 possible
 selling
 price
 for
  MCC
 for
 an
 upcoming
 merger
 negotiation
 with
 ATT.
 
  In
 order
 to
 achieve
 our
 goal
 in
 determining
 the
 value
 of
 MCC
 appropriately,
 due
  diligence
 must
 be
 paid
 in
 valuating
 the
 company
 based
 on
 three
 methodologies
 agreed
  to
 be
 good
 commencement
 points
 for
 such
 an
 exercise
 in
 the
 mergers
 and
 acquisitions
  realm.
 These
 include
 a
 comparable
 companies
 analysis,
 a
 precedent
 transaction
 analysis,
  and
 a
 discounted
 cash
 flow
 analysis.
 We
 will
 then
 take
 the
 average
 of
 the
 three
 methods,
  so
 that
 we
 may
 then
 adjust
 the
 figure
 for
 synergies
 and
 risks
 in
 order
 to
 present
 a
 fair
  value
 for
 the
 firm.
 This
 will
 then
 be
 the
 basis
 of
 our
 negotiation
 strategy,
 as
 we
 need
 to
  determine
 a
 target
 and
 reservation
 price.
 
  3
 Valuation
 Methodologies
 
  Comparable
 Companies
 Analysis
 
 
  When
 comparing
 MCC
 to
 other
 similar
 telecommunications
 companies,
 cellular,
  using
 revenue
 over
 market
 ratios,
 we
 find
 the
 approximate
 valuation
 for
 MCC
 to
 be
  $6.25
 Billion
 (Appendix
 1).
 
 
 
  The
 comparable
 companies
 analysis,
 allows
 us
 to
 generate
 a
 value
 for
 a
 company
  by
 identifying
 the
 most
 relevant
 peer
 group,
 the
 firms
 involved
 in
 the
 cellular
 segment
 of
  the
 telecommunications
 industry,
 then
 determine
 the
 valuation
 multiples
 to
 EBITDA
 and
  earnings
 estimates
 for
 target
 to
 determine
 the
 value
 range.
 In
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