1. Valuation of AirThread Connections
Prepared 11.12.2016 by:
Delphine Finders-Binje
Hermine Theunissen
Kim Pierlot
Ophélie Simonart
Vitaly Pentegov

2. 2
Contents
Valuation Methods
Cash Flows Calculation
Discount Rate
Terminal Value
Enterprise Value
Tax Shield

3. 3
Valuation Methods
DCF
APV
Value of
Equity
Value of
Debt
Value of All-
equity Firm
Value of
Tax Shield
Description
Intrinsic value of the
company was
calculated as the sum
of free cash flows
generated by the
upstream assets
discounted by specific
cost of capital
Consideration
• Give theoretically right result if there is
an implicit assumption that the financial
structure will remain constant.
• If debt is expected not to increase with
the enterprise value but to remain
stable or decrease over time, WACC
valuation is not appropriate.
Description Consideration
NPV of company if
financed solely by
equity plus the present
value of any financing
benefits, which are the
additional effects of
debt.
• If debt levels are scheduled to decrease
through time, it overestimates the beta,
and therefore underestimates the value.

4. 4
Cash Flows Calculation
Sources:
Growth NFA: -1.0123%
sum NFA 2005 4,876.35
sum NFA2006 4,825.70
sum NFA 2007 4,778.12
sum NFA 2008 4,729.75
sum NFA 2009 4,681.87
sum NFA 2010 4,634.48
sum NFA 2011 4,587.56
sum NFA 2012 4,541.12
Growth K 7.99%
K 2005 2,741.04
K 2006 2,993.28
K 2007 3,196.16
K 2008 3,451.53
K 2009 3,727.31
K 2010 4,025.12
K 2011 4,346.72
K 2012 4,694.03
Cash Flows
CF op 988.46 1,126.85 1,256.52 1,372.55 1,458.35
NI 283.23 322.89 389.08 450.18 505.44
Dep 705.23 803.96 867.44 922.38 952.91
delta WCR 0 0 0 0 0
CF inv (753.6) (851.8) (914.8) (969.3) (999.4)
delta NFA (48.37) (47.88) (47.39) (46.91) (46.44)
Depreciation (705.2) (804.0) (867.4) (922.4) (952.9)
CF fin 255.37 275.78 297.81 321.61 347.30
delta K 255.37 275.78 297.81 321.61 347.30
delta D 0 0 0 0 0
Div 0 0 0 0 0
Operating
Cash Flows
Investing
Cash Flows
Financing
Cash Flows

5. 5
Discount Rate
Sources: US Treasury, Case assumptions, Team estimates * no preferred equity in case
WACC
Cost of Debt Comparable Companies Unlevered Beta
Cost of Debt 8.4% Predicted Debt/ Marginal Unlevered
Tax Rate 40.0% Company
Levered
Beta(4) Equity Tax Rate Beta
After-tax Cost of Debt 5.1% Universal Mobile 0.86 58.3% 40.0% 0.64
Neuberger Wireless 0.89 41.9% 40.0% 0.71
Cost of Equity Agile Connections 1.17 24.1% 40.0% 1.02
Risk Free Rate 4.4%
Big Country
Communications 0.97 31.7% 40.0% 0.81
Equity risk premium 5.0%
Rocky Mountain
Wireless 1.13 44.4% 40.0% 0.89
Levered Beta 1.02 Mean 1.00 40.1% 0.82
Cost of Equity 9.5% Median 0.97 41.9% 0.81
WACC 8.2% ValueCo Relevered Beta
Mean Target Target
Unlevered Debt/ Marginal Relevered
Beta Equity Tax Rate Beta
Relevered Beta 0.82 42.2% 40.0% 1.02
CAPM:
× ( )
Unlevered Levered
US Treasury 20Y
Weight of
equity in
capital
structure *
Weight of debt
in capital
structure
Interest Expense / Debt

6. 6
Terminal Value
Sources: Case, Team estimates
Growth rate= ROC × Reinvestment Rate
Terminal Growth Rate
ROC 5.88%
Reinvestment rate 59.90%
CapEx 548.52
ΔWCR 231.30
D&A 582.269
NOPAT 329.79
Growth rate 3.52%
𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁
𝐷𝐷 + 𝐸𝐸
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛥𝛥𝑊𝑊𝑊𝑊𝑊𝑊 − 𝐷𝐷&𝐴𝐴
𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁
Growth
Rate
Terminal
Value
Terminal Value
FCFF 2012 367.61
FCFF 2012 (1+g) 380.55
Terminal Value 8145.79
𝑇𝑇𝑇𝑇 = 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑛𝑛 + 𝐸𝐸𝐸𝐸𝐸𝐸 𝐸𝐸𝐸𝐸𝐸𝐸 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 × 𝐸𝐸𝐸𝐸𝐸𝐸 𝐸𝐸𝐸𝐸𝐸𝐸
Perpetuate Growth Method
Multiple Method
7 852.7

7. 7
Enterprise Value
The enterprise value is calculated by: Example of 2008 FCF calculation
EBIT
less: taxes
plus: D&A
less: CapEx
less: change in NWC
0.0
100.0
200.0
300.0
400.0
500.0
2008 2009 2010 2011 2012
FCFF FCFF (discounted)
FCFF calculation for EV
CapEx = Ending PP&E + Depreciation – Beginning PP&E
ΔNet Working Capital = (End. Current Assets – End. Current Liabilities) - (Beg. Current Assets – Beg. Current Liabilities)
EV Calculation
2008 2009 2010 2011 2012 DCF analysis numbers
EBIT 405.9 462.7 557.6 645.2 724.4 Tax Rate 40.00%
less: taxes (127.3) (150.0) (187.9) (223.0) (254.6) Net Debt $797.8
plus: D&A 705.2 804.0 867.4 922.4 952.9
less: CapEx (631.3) (719.7) (867.4) (970.1) (1,055.0) EBITDA multiple (historical)
less: change in NWC 0.0 0.0 0.0 0.0 0.0 EV/EBITDA, x 10
FCFF 352.6 397.0 369.7 374.5 367.6
Terminal Value
(growth) 8,145.8 APV method
Terminal Value
(EBITDA) 7,852.7 PV(FCF)+TV 6366.62
EV (growth method) 6,725 PV (TV TS) 990.13
EV (multiple method) 6,527 EV 7,357
Sources: Team estimates, case description

8. 8
Synergy Assumption
Sources: Team estimates, case description * perpetual growth method
Synergy
Cost Synergy Revenue Synergy
2008 2009 2010 2011 2012 2008 2009 2010 2011 2012
System Operating
Expenses 838.87 956.31 1075.85 1183.43 1266.27
Av. Monthly
subscribers 0.3 0.5 0.7 1 1.2
System Operating
Exp./Service
Revenue 0.20 0.20 0.20 0.20 0.20
Av. Monthly
Minutes 859 885 911 939 967
Estimated Costs 167.77 191.26 215.17 236.69 253.25
Total Monthly
Minutes 258 443 638 939 1160
Reduction 0.00 0.07 0.12 0.22 0.30 Revenue per minute 0.05 0.05 0.05 0.05 0.05
Savings 0.00 13.39 25.82 52.54 75.98 Revenue Increase 156.48 268.69 387.21 570.16 704.59
0
200
400
600
800
1000
2008 2009 2010 2011 2012
FCF (no synergy) Synergy Contibution
Assuming Ms. Zhang's estimates for synergies
Enterprise Value
EV calculation
2008 2009 2010 2011 2012 DCF analysis adjustments APV method
EBIT 405.9 462.7 557.6 645.2 724.4 Tax Rate 40.00% PV(FCF)+TV 13630.77
Synergy adj. EBIT 562.4 744.8 970.6 1,267.9 1,504.9 Net Debt $797.8 PV (TV TS) 990.13
less: taxes (189.9) (262.8) (353.2) (472.1) (566.9) EV 14620.90
plus: D&A 705.2 804.0 867.4 922.4 952.9 EBITDA mult
less: CapEx (631.3) (719.7) (867.4) (970.1) (1,055.0) EV/EBITDA, x 10
less: change in NWC 0.0 0.0 0.0 0.0 0.0
FCFF 446.5 566.3 617.5 748.1 836.0
Terminal Value (growth) 18,523.6
Terminal Value
(EBITDA) 16,387.0
EV (growth method) 14,425
EV (multiple method) 12,984
We get the following enterprise value numbers
+ $7700 MM
Synergy
contribution
to the AirThread’s
Enterprise Value *
Synergy contribution to the free cash flows

9. 9
Valuation Graph
Sources: Team estimates
$0.00 $5,000.00 $10,000.00 $15,000.00 $20,000.00 $25,000.00
DCF, WACC
2007 P/E:
2007 EV/EBITDA:
2007 EV/Revenue:
Min to 25th
25th to Median
Median to 75th
75th to Max
Public Company
Comparables
Discounted Cash Flow
Analysis

10. 10
Tax Shield Consideration
Sources: Berk/DeMarzo – Corporate Finance
The value of the tax shields reflect the personal tax disadvantage of interest income to ordinary
debt holders as personal taxes may offset the corporate tax benefits of leverage. Investors are
generally taxed on interest income from debt and dividend income from a stock; they are also
taxed on capital gains when they sell a stock.
Where,
τ𝑒𝑒 - the personal tax rate on equity income
τ𝑖𝑖 - the personal tax rate on interest income
τ𝑐𝑐 - corporate tax
Tax Shield = τ∗ × interest expense
Therefore, if τ𝑒𝑒 > τ𝑖𝑖 then τ∗
> τ𝑐𝑐 then there is a tax disadvantage of leverage

11. Thank you for your attention!