Valuation of Airthread Connections
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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 acquisition was threefold.
First, American Cable and AirThread could help each other compete in an industry that was moving more and more toward bundled service offerings. American Cable currently offered video, internet, and landline telephony, but did not have any kind of wireless offerings. This gap in product offerings had so far been exploited only modestly by competitors—primarily incumbent local exchange carriers (ILEC’s) with wireless networks—but as those firms grow their video offerings the problem was expected to become more acute. Additionally, American Cable saw a looming competitive threat from advanced wireless networks based on the 802.16n standard for mobile
WiMAX. Those networks are expected to be able to deliver not only wireless telephony but also internet service with throughput similar to that which is currently offered by cable providers.
AirThread, for its part, faced similar pressures with respect to the same set of competitors because it didn’t offer landline or internet service. However, unlike ACC, AirThread was feeling the pressure more immediately in the form of higher customer acquisition and retention costs, plus slower growth. Second, the acquisition could help both companies expand into
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 acquisition was threefold.
First, American Cable and AirThread could help each other compete in an industry that was moving more and more toward bundled service offerings. American Cable currently offered video, internet, and landline telephony, but did not have any kind of wireless offerings. This gap in product offerings had so far been exploited only modestly by competitors—primarily incumbent local exchange carriers (ILEC’s) with wireless networks—but as those firms grow their video offerings the problem was expected to become more acute. Additionally, American Cable saw a looming competitive threat from advanced wireless networks based on the 802.16n standard for mobile
WiMAX. Those networks are expected to be able to deliver not only wireless telephony but also internet service with throughput similar to that which is currently offered by cable providers.
AirThread, for its part, faced similar pressures with respect to the same set of competitors because it didn’t offer landline or internet service. However, unlike ACC, AirThread was feeling the pressure more immediately in the form of higher customer acquisition and retention costs, plus slower growth. Second, the acquisition could help both companies expand into