(part 2)
William J. Rouhana, Jr.
William (Bill) J. Rouhana, Jr., has been Chairman of the Board of WinStar Communications, “The
New Phone company” since February 1991, a Director of the company since its inception, and Chief
Executive Officer of the company since March 1994. Before joining WinStar Communications, Mr. Rouhana
was President and Chief Executive Officer of WinStar Companies, Inc., a merchant banking company
investing in telecommunications and media companies. From August 1987 to February 1989, Mr. Rouhana
was Vice Chairman of the Board and Chief Operating Officer of Management Company Entertainment
Group, Inc., a diversified distributor of entertainment products and, thereafter, until May 1990, he served as
Executive Vice Chairman of the Board of MCEG. From August 1992 to July 1997, Mr. Rouhana was a
Director of TII Industries, Inc., a telecommunications manufacturing company. Mr. Rouhana was in private
legal practice from 1977 to 1986 specializing in the finance of entertainment products. Mr. Rouhana received
a Bachelor of Arts degree from Colby College in 1972 and a Juris Doctorate from Georgetown University
School of Law in 1976.
Nathan Kantor
Nathan (Nate) Kantor has been a member of the WinStar Board of Directors since 1994 and became
President and Chief Operating Officer of the company in 1995. Prior to joining WinStar, Mr. Kantor was the
President of ITC Group, Inc., a firm that assists in the development of emerging competitive
telecommunications companies. Through ITC, Mr. Kantor coordinated all of WinStar's telecommunications
operations from June 1994 to September 1995, when he became President and Chief Operating Officer of the
company. From January 1985 to December 1990, Mr. Kantor was President of the Northeast Division of
MCI Communications Corporation, where he was part of the management team that built MCI as the second-largest
domestic long-distance carrier in the United States. Mr. Kantor was President, Chief Operating Officer
and a founder of MCI International, Inc., and was responsible for the development and implementation of
MCI's international business strategy. Mr. Kantor holds a Master's degree in Management from Florida State
University and a Bachelor's degree in Engineering from the United States Military Academy at West Point.
Charles T. Dickson
Charles (Charlie) Dickson joined WinStar Communications as Executive Vice President and Chief
Financial Officer in December 1997, with extensive experience in finance and telecommunications. Prior to
his WinStar tenure, Mr. Dickson served for four years as Chief Financial Officer of General Instrument
Corporation, a $3-billion world leader in providing equipment and services for advanced broadband networks.
Previously, from 1984 to 1993, Mr. Dickson was a senior financial executive at MCI Communications
Corporation. In his last MCI assignment, he was Vice President, Finance and Administration for the $2.4-
billion National Accounts Division, which served the company's largest business customers. Prior to that, Mr.
Dickson held similar positions with other MCI divisions in Denver and New York and also served in the
company's Corporate Financial and Regulatory departments. He received a Bachelor of Arts degree from
Clark University and a Master's degree in Public Policy from the University of California at Berkeley.
Robert K. McGuire
Robert (Bob) McGuire is the President and Chief Operating Officer of WinStar's Large Accounts
unit, responsible for leading WinStar's wireless competitive access business, which sells communications
services to large businesses and on a wholesale basis to other carriers. Mr. McGuire joined WinStar in 1996
as Senior Vice President of Sales and National Operations, and was promoted to his current position in 1997.
Prior to joining WinStar, Mr. McGuire spent 11 years at MCI Telecommunications, Inc. While at MCI, Mr.
McGuire was responsible for designing and developing MCI's Major Account program. He also built and
managed a large organization of national account sales, service and technical support personnel. In addition,
he was responsible for developing and implementing long-term sales and service strategies to service national
accounts. Prior to MCI, Mr. McGuire served as Regional Sales Manager for IBM's Satellite Business
Systems group. He was responsible for hiring and managing all sales and service representatives in the
Northeast area. Mr. McGuire holds a Bachelor of Science degree from Pennsylvania State University.
Jack Chidester
Jack Chidester is President and Chief Operating Officer of WinStar's General Business unit, which
provides telecommunications services to small and medium-sized businesses. Mr. Chidester, a
telecommunications veteran, comes to WinStar from PSINet, a global Internet service provider. As Senior
Vice President of U.S. Sales and Marketing, he was responsible for Corporate Network Services, Carrier and
ISP Wholesale Services, and Application and Web Services. Prior to his tenure at PSINet, Mr. Chidester
spent almost 17 years at MCI Business Services and MCI Systemhouse where he was responsible for Global
Enterprise Management Services offering small and medium-sized businesses the capability to manage their
information technology infrastructure. Mr. Chidester holds a Bachelor of Science degree from Pennsylvania
State University.
Kathleen R. Flaherty
Ms. Flaherty is the President and Chief Operating Officer of WinStar International. She is a 20-year
veteran of the telecommunications and information services industries and was most recently the President and
Chief Operating Officer of WinStar Europe. In her new role, Ms. Flaherty will continue the expansion of
WinStar's broadband network into its top 50 targeted international markets. Ms. Flaherty has a wide-ranging
telecommunications background with specific emphasis in the international arena. Previously, Ms. Flaherty
was Senior Vice President, Global Product Architecture and Engineering for MCI Worldcom. She also
headed local and long-distance marketing functions servicing businesses in the U.K. market for British
Telecom (BT). In addition, as the senior MCI executive assigned to develop and launch Concert -- the global
communications joint venture of BT and MCI -- Ms. Flaherty headed worldwide sales and marketing. She
also held executive positions at MCI in national accounts marketing, national account sales, financial
operations and engineering.
Dave Ackerman
David W. Ackerman, Executive Vice President, WinStar Network Services and Business
Development, oversees development, construction and operation of WinStar's state-of-the-art fixed wireless
broadband network and the delivery of Wireless FiberSM service to WinStar customers. Mr. Ackerman, who
joined WinStar in 1994, is a leader in the commercial development of wireless communications technology
and brings more than 27 years of experience in local, long-distance and wireless services to the company.
Before joining WinStar, Mr. Ackerman served as Senior Vice President of Mobile Telecommunication
Technologies (Mtel), where he led Mtel's development of two-way paging and headed corporate strategy and
new business development. Previously, Ackerman held a number of senior positions at MCI Communications,
where he was responsible for design and deployment of new products and services, including MCI 800,
Virtual Network Service and MCI Fax, as well as paging and cellular operations later sold to McCaw
Cellular. Before joining MCI, Mr. Ackerman held senior positions in operations, planning, development,
finance and marketing with GTE, Rochester Telephone company and New York Telephone. Mr. Ackerman,
a licensed Professional Engineer, received his Bachelor's and Master's degrees in Electrical Engineering from
Cornell University and attended the University of Rochester Graduate School of Management. Mr. Ackerman
is a former Executive Director of the United Negro College Fund and a former director of both the Cellular
Telecommunications Industry Association and Telocator.
Timothy R. Graham
Timothy R. Graham, Executive Vice President and General Counsel, leads the legal, regulatory and
government affairs activities for Winstar, both domestically and internationally. Mr. Graham also serves on
the company's Board of Directors. Before joining Winstar, Mr. Graham was in private practice. Previously,
Mr. Graham was a partner in the law firm of Nixon, Hargrave, Devans & Doyle, specializing in corporate
finance, regulatory and business law. Mr. Graham also served as a Securities Law Editor of Barrister
magazine, an American Bar Association publication, and has authored a number of publications, including
“Public Offerings in the United States by Foreign Companies” and “Financing of Foreign Companies through
United States Securities Markets.” Mr. Graham is a graduate of Fordham Law School and the Georgetown
University School of Foreign Service. He is a member of the Board of Advisors of the Instructional
Television Station of the Archdiocese of New York.
Richard J. Uhl
As President and Chief Operating Officer of Winstar for Buildings, Richard Uhl is responsible for
securing the access rights to commercial buildings to enable Winstar Communications, Inc. to offer its fixed
wireless broadband communications services to existing and future tenants. Under Mr. Uhl's leadership,
Winstar for Buildings works with building owners and managers to contribute to their tenant retention and
attraction efforts. Mr. Uhl is also responsible for the acquisition of the lease hold rights necessary to construct
and house Winstar hub and switch sites in the top U.S. markets. Before joining Winstar in 1997, Mr. Uhl
was a member of the Board of Directors of Frontier Corporation, a position he assumed when ALC
Communications Corporation merged with Frontier in 1995. Mr. Uhl previously served on ALC's board for
four years, and was Vice President, Controller and Treasurer of MCI Communications Corporation for six
years. Mr. Uhl served as President and Board Member of Chicago Holdings, Inc., a privately-owned
investment banking firm, for 12 years. He also has been an Officer and Board Member of numerous
companies in which Chicago Holdings has invested. In these and other capacities, Mr. Uhl has been
instrumental in the founding and developing of many early-stage companies, including a number of
telecommunications firms.
Valuation
Our discounted cash flow model on page 10 summarizes the key long term fundamental and valuation
assumptions that drive our Net Asset Value for WinStar. The top two thirds of this table reflect our
fundamental forecast. The bottom third highlights our valuation assumptions.
WinStar's net asset value: The mathematics behind our net $92 per share year-end 1999 net asset value
estimate for WinStar runs as follows. The net present value of WinStar's free cash flows (EBITDA minus
capital spending) discounted at 14% for 10 years approximates $1.5 billion. The net present value of
WinStar's liquidation value 10 years hence (based on a multiple of 10x cash flow and discounted at 14%)
approximates $6.4 billion. The sum of these two estimates ($7.9 billion) reflects WinStar's gross asset value.
After subtracting roughly $1.5 billion of net debt, the company's net asset value approximates $6.3 billion or
$92 per share. These figures are detailed in the box in the lower left hand of our 10-year DCF model
accompanying this report. The box in the lower right hand side of our 10-year DCF highlights the sensitivity
of our target price to different discount rates and terminal multiples. Although a strong case can be made that
our 14% discount rate is too steep and our 10x terminal multiple is too light, these metrics continue to
successfully identify undervalued CLEC stocks and, as such, we think they represent reasonable (and useful)
valuation metrics.
CLECs don't have P/E ratios so investors look at “public market discounts” instead: Historically,
investors in the telecom and media sectors have measured the investment attraction of earnings-less companies
on the basis of their public market discounts, i.e. the discount at which a stock trades vis-à-vis its break-up
value. Over the past 15 years we have published dozens of estimated net asset values for companies we've
covered in both sectors. By comparing the historical price action of these stocks with our historical net asset
value estimates a clear pattern emerges. Typically public market discounts bottom at 50% or so and top out at
30% or so. This applies to WinStar although only recently. For years the company traded at a discount to its
peer group reflecting the market's skepticism about fixed wireless networks. The stock's valuation has
recently improved reflecting the fact that wireless networks are increasingly being accepted as main stream
access vehicles.
The tables on the following page offer a historical perspective of WinStar's public market discount
vis-à-vis our historical and current published net asset value estimates:
· Top Table: Highlights WinStar's price action from February 1998 to the present. A line representing our
historical net asset value estimates for the company has been superimposed on this table. Over this period
our net asset value estimates have been raised, lowered and raised again reflecting the on-again off-again
visibility of the company's near term results. As noted, the stock's historically deep discount vis-à-vis its
peer group has shrunk lately reflecting the market's growing confidence in management and its game
plan.
· Middle Table: Tracks WinStar's “public market discount” i.e., the spread between the company's stock
price and our net asset value estimate at any point in time.
· Bottom Table: Quantifies the peaks and troughs in WinStar's public market discount over the past 18
months. Note the deep discount to net asset value the stock traded at during most of 1998 and the severe
damage sustained by the stock in the “October Meltdown” during that year. Note also that the fluctuations
in the public market discount have recently remained within the normal range of 30% to 50% - although
the bias has been toward the lower end. Over the past nine months, the stock has bottomed four times
when its public market discount traded at the 50% level. The last three times the stock peaked, it did so
when its public market discount traded at the 30% level. The current public market discount of 50% is
attractive by historical standards hence our enthusiasm for WCII shares.
(extensive tables omitted) |
