Advantages of Merging: Besides the obvious benefits of entering an industry which is pegged to grow detailed, it makes operational and economic sense to both the organizations. To not go the merger route means huge time and monetary costs for AT&T. And with arduous regulatory Issues and depleting cost effective spectrum licenses, AT&T may just not be able to cross the high entry barriers to this industry. At the same time, AT&T could look at acquiring other players in this industry, but with the weak dollar price (less mergers) the action may need to be quick in nature.
Besides which as Macaw is still predominantly a family run business, the transition period could be reduced significantly. Another advantage for the organization stems In from the economic benefits of being able to bypass For Macaw, the need Is imminent as well. Someone has to reduce the debt burden the organization is now heavily laden with. With the potential health hazard to the industry, it would be a safe time to cash in as well. Disadvantages of Merging: With AT&T already being highly leveraged, merging with an organization of the size and d/e ratio of Macaw could significantly put AT&T in risky waters.
This could negatively Impact their bond ratings, which would adversely Impact their ability to release Utter EOT. Another snort term loss wanly Is Imminent Is ten clean In ten share prices of the company. For Macaw it could mean the opportunity cost of cashing in, when the industry is still booming and thereof being unable to secure the potential for a better payout in the future. Risks Involved: The key risks both these organizations face are the regulatory hurdles this deal could face which could delay or cancel AT&T?ws entry in this industry, and meanwhile significantly impede Macaw?was growth prospects owing to the heavy debt.
Another key risk as mentioned in the disadvantages of merging is that both the organizations eave a high debt to equity ratio. It could lead to AT&T being cash strapped in rolling out its plans post this merger. Like in the case of the NCR merger, the slow materializing of benefits could hampers AT&T?ws growth prospects in a time when the competitors are looking to penetrate the market, increase their market share and the churn rate is as low as 2. 2%.
The transaction may not sail through on grounds of a shrewd business standpoint from either of the boards sides. It could also boil down to carving out the position for Craig Macaw, and the way he would like for the business to continue post its absorption in AT&T. Finally if the merger takes place at an unjust price for AT&T, then with the falling call prices, the benefits of this investment could become uncertain. Another transactional risk which exists is the 20% stake enjoyed by British telecoms in Macaw and what price would that equity be bought.
This risk gains great importance on the grounds, that British Telecoms has seen a negative return of almost 50% in its investment (41 $ to 24 S), and whether they will be willing to dilute their interest and take a major loss. Finally since Macaw sees aspirations have led it to acquiring a 52% stake in Line, the future of Line and Macaw?was relationship could really make or break the fruits of this merger. Goals: As the negotiator for AT&T, our goal is to ensure that the deal is signed at a price acceptable to us.
Another goal for us is to secure this deal during the current market sentiment when mergers are at a low and hence we could enjoy the relative cost advantages. Moving on, we need to get the ideal mix of the cash ?” equity ratio for financing this deal. With a high debt ratio and the addition of Macaw?was debt to our balance sheets, we need to sign the deal which effects this potentially harmful ratio the least. The goals of people from Macaw would involve driving us to pay the maximum due to our need.
Their motive would likely be to have a high cash component while receiving the payment to cover their debt and assets. Craig, being an individual who feels the need to be in control of his companies, and his intention of seeking a partnership, he would look for a position of influence in the new amalgamated firm. Negotiating Strategy: The strategy we?wad like to adopt is to leverage on the fact that Macaw is a debt heavy company, and has limited capacity to expand on its own. We would start with our negotiation price at 8 billion basing their valuation on industry standards.
Owing to its current debt rating, the impending decision to exercise its option in LINE would most likely lead to a sale of the 52% shares, leading to loss of business and strategic markets. Purchasing the 48% share looks highly unlikely without equity infusion. Being a family business, Macaw would prefer being associated with a large brand name to carry on with the legacy. We understand the Macaw would like to be in a position of authority, and we would like to offer him a seat in the Board of Directors in
Al&l Attune same pilot AT time, we would rolling to ten annulling ten market price AT Macaw?was share which are priced today @ 25$. Adding a premium of 50% to the share price (accounting for the market momentum) the 80% shares of Macaw can be purchased at 5. 5 Billion. The remaining shares owned (20% by BAT) can be bought at 40$, making the valuation of Macaw at 7 billion (100%). Working in the range of 95$-120$ for Line the maximum payout would be 3. 1 Billion. If the pricing of 10 Billion is not acceptable we would gradually escalate our offer by increasing the price of the shares.