Case | HBS Case Collection | March 2011

Valuation of AirThread Connections

by Erik Stafford and Joel L. Heilprin

Abstract

This case can be used as a capstone valuation exercise for first-year MBA students in an introductory finance course. A senior associate in the business development group at American Cable Communications, one of the largest cable companies in the U.S., must prepare a preliminary valuation for acquiring AirThread Connections, a regional cellular provider. The acquisition would give American Cable access to wireless technology and the wireless spectrum and enable the company to offer competitive service bundles including wireless, currently a hole in the company's service offering. Students learn the basic valuation concepts including DCF (discounted cash flow) using APV (adjusted present value) and WACC (weighted average cost of capital) and they must choose the appropriate approach for situations in which the capital structure is changing or assumed to be constant. Students must consider the effect of constant debt versus the D/V (debt-to-value ratio) in estimating betas and the costs of capital. In addition, students analyze the effects of non-operating assets on valuation. As an additional assignment, instructors can require students to consider the personal tax disadvantage of debt as well as the synergies American Cable expects to achieve following the acquisition.

Keywords: communication; Assets; Present value; Cash flow; Tax accounting; Capital costs; capital structure; valuation; Synergy; Telephony; Wireless technologies; Communication Technology; Assets; Cost of Capital; Valuation; Cash Flow; Capital Structure; Accounting; Wireless Technology; Communications Industry; Media and Broadcasting Industry;

Citation:

Stafford, Erik, and Joel L. Heilprin. "Valuation of AirThread Connections." Harvard Business School Brief Case 114-263, March 2011.