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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..]

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To: MangoBoy who wrote (534)	8/5/1999 11:09:00 AM
From: SteveG	Read Replies (1) of 1860

somewhat OT convergence news: AT&T/BRITISH TELECOM TO PURCHASE 33% OF ROGERS CANTEL AS SECOND M&A EVENT HITS CANADIAN... Deutsche Banc Alex. Brown - US Equities Jeffrey L. Hines,Bo Fifer August 05, 1999 --------------------------------------------------------------------------- ---- BCE MOBILE COMMUNICATIONS INC. [BCX] "MKT. PERFORM" CLEARNET COMMUNICATIONS INC. [CLNTF] "STRONG BUY" MICROCELL TELECOMMUNICATIONS INC. [MICTF] "STRONG BUY" ROGERS CANTEL MOBILE [RCN] "BUY" AT&T/British Telecom to Purchase 33% of Rogers Cantel as Second M&A Event Hits Canadian Wireless Market in One Week--We Believe Positive for Rogers Cantel the Company but Perhaps Not the Stock--Reiterate Top Views on CLNTF and MICTF --------------------------------------------------------------------------- ---- 52-WK Earnings Per Share FY Price Price 3-5 Yr Est. Ticker End 08/05/1999 Range 1998 1999 2000 Growth Chg? BCX 12 38.56 39-22 0.00A 0.18 0.41 N CLNTF 12 16.69 19-6 (10.93)A (9.75) (8.38) N MICTF 12 10.38 11-4 (7.65)A (6.98) (5.71) N RCN 12 22.56 26-7 (0.85)A (0.46)P 0.18P Y --------------------------------------------------------------------------- ---- All EPS estimates in C$. HIGHLIGHTS: --AT&T/British Telecom announced Thursday (5-Aug) plans to purchase a 33% interest in Rogers Cantel, a Canadian wireless operator that has never quite lived up to expectations. The announcement removes perhaps the last strong event reason (in our opinion) to own RCN shares (i.e., the chance of an M&A event) relative to other Canadian wireless plays. --The announcement comes on the heels of last weeks (30-July) announcement that Bell Canada was purchasing the 35% minority interest of BCE Mobile that it did not already own. We note that in a "separate" transaction announced Thursday, British Telecom is also purchasing 30% of AT&T's 31% interest in AT&T Canada. --PRICE TAG: Too low in our opinion. Cantel, like BCE Mobile, suffers from being majority owned by another company (Rogers Communications) and a spotty track record of execution. The price being paid for the 33% interest (which will include 27.8 million newly issued common share equivalents and 12.3 million shares to be purchased from Rogers Communications, previously the 80% owner of Cantel) is C$34.70 (approx. US$23.28) cash. This implies a 13.3x and 11.7x our 1999 and 2000 estimates of cash flow of C$426 and C$487 million. This is less than the 14.5x and 12.4x that we believe Bell Canada purchased BCE Mobile last week. We again question both the timing (at the very moment that the market is beginning to take off) and price (too low) of these transactions and again point toward the awkwardness of owning a "stub" issue of a Company controlled by others. --BULLISH FOR CANTEL THE COMPANY, BUT PERHAPS NOT THE STOCK: In our opinion, the announcement strengthens a decade-old relationship between AT&T and Cantel (Cantel markets its service under the name Cantel-AT&T) with the added benefit of bringing British Telecom on board as well. The transaction brings close to C$1.0 billion of cash into Cantel and significantly improves its balance sheet and hence financial position. However, with AT&T and British Telecom (33% interest in Cantel) and Rogers Communications (51%) now all owners of the Company, and involved in other telecommunications ventures across the market, it raises the issue of public shareholders (15% interest) of RCN owning a stub of a company owned by others involved in other ventures across Canada. --STOCK PRICE PERFORMANCE: YTD, RCN is up 85% versus a 53% gain in our Cellular Index and ahead of both the S&P500 (up 6%) and the Toronto 300 (up 7%). --NET-NET: Increased M&A in the Canadian market is now a reality. Maintain STRONG BUY investment ratings on the shares of CLNTF and MICTF the only two independent players in the market, both with strong management teams. Based on our DCFs, our 12-month price objectives are US$33 for CLNTF, US$19 for MICTF.

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