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Technology Stocks : Internet Analysis - Discussion

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To: Chuzzlewit who wrote (396)	2/27/2000 5:31:00 PM
From: kjhwang	Read Replies (1) of 419

If we examine the merged entity from a DCF valuation standpoint, isn't it true that the large LT debt load & Pfd. stock carried by TWX will HELP the valuation case of the merged entity using a WACC analysis? Case in point: AOL : Debt: 341 M Pfd. Stock: 0 Equity (MV)~ 134129 M WACC~19.18% Combined: Debt: 18153 M Pfd. Stock: 1 M Equity ~ 242153 WACC~ 17% To approximate the value of the combined, an approximation of the future cash flows are needed. My belief is that the current valuation of the combined is UNDERVALUED at current prices using a simple combination of the two financials & assuming a growth rate between 35% & 20% over 10 years. Reasons: 1. Decrease in WACC 2. Increase in FCF/share of combined entity. Am I missing something? tci

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