At&T's Acquisition of Mccaw
Introduction:
McCaw Cellular Communications is a cellular telephone pioneer in the United States is faced with a challenging decision regarding the future of the firm. The direction of the company will depend on whether CEOs of McCaw Cellular Communication and AT&T agree on an appropriate price of the company. In order to capture the value of McCaw Cellular Communications, three financial valuation models were developed while taking into account the trends in the industry and potential synergies from the take-over.
Valuation Model #1: Comparable Transactions: As mentioned in the business life cycle section( Exhibit A), cellular companies are in huge demand due to their outstanding growth potential. From the period of October 1989 and September 1991, eleven mergers and acquisitions transaction took place in the cellular industry. Careful analysis of these transactions is required in order to determine the appropriate Value/POP multiple. It is important to mention that these multiples incorporate all four steps of the valuation process (As-Is, Improvements, Synergies, Future Options). After analyzing the list, it was found that the most appropriate precedent transaction is Bell Atlantic Corp.’s acquisition of MetroMobils CTS for several reasons. First, this transaction was the most recent which will best reflect the mergers and acquisition market condition and the appropriate risk for the cellular industry. Second, similar to AT&T, Bell Atlantic Corp.’s strategy was probably trying to penetrate the wireless industry after realizing that the wireline industry is maturing which was reflected in the relatively high multiple. Furthermore, the hard synergies between the two transactions are probably similar. Bell Atlantic probably used its brand name to utilize cost saving synergies in advertising similar to AT&T’s plan, as well as operational synergies by lowering CAPEX and SG&A costs. Moreover, Bell Atlantic was probably looking to capture revenue synergies
McCaw Cellular Communications is a cellular telephone pioneer in the United States is faced with a challenging decision regarding the future of the firm. The direction of the company will depend on whether CEOs of McCaw Cellular Communication and AT&T agree on an appropriate price of the company. In order to capture the value of McCaw Cellular Communications, three financial valuation models were developed while taking into account the trends in the industry and potential synergies from the take-over.
Valuation Model #1: Comparable Transactions: As mentioned in the business life cycle section( Exhibit A), cellular companies are in huge demand due to their outstanding growth potential. From the period of October 1989 and September 1991, eleven mergers and acquisitions transaction took place in the cellular industry. Careful analysis of these transactions is required in order to determine the appropriate Value/POP multiple. It is important to mention that these multiples incorporate all four steps of the valuation process (As-Is, Improvements, Synergies, Future Options). After analyzing the list, it was found that the most appropriate precedent transaction is Bell Atlantic Corp.’s acquisition of MetroMobils CTS for several reasons. First, this transaction was the most recent which will best reflect the mergers and acquisition market condition and the appropriate risk for the cellular industry. Second, similar to AT&T, Bell Atlantic Corp.’s strategy was probably trying to penetrate the wireless industry after realizing that the wireline industry is maturing which was reflected in the relatively high multiple. Furthermore, the hard synergies between the two transactions are probably similar. Bell Atlantic probably used its brand name to utilize cost saving synergies in advertising similar to AT&T’s plan, as well as operational synergies by lowering CAPEX and SG&A costs. Moreover, Bell Atlantic was probably looking to capture revenue synergies